Land value taxes are even better. Property taxes provide a disincentive to making the land more productive. A land value tax would incentivize residential landowners to build more units which provides more supply and would lower rents.
The biggest problem (IMO) is that it's not so simple to value land. Where I live, being two blocks over can make a huge difference. It's easy to say "you paid $500k for your house, so we're gonna tax you on $500k". It's much harder to accurately say what someone would have paid for the land were it not developed. I understand the benefits of LVT, but how do you solve this? Are there any good examples of governments that use LVT in practice [1]? What do they do?
[1] In practice and as a primary means of property taxation. For example, proponents of wealth taxes talk about Switzerland, but the percentage of wealth that gets taxed there is quite small and nowhere near what proposals for wealth taxes in the US are aiming for. In other words, what's a good country to look at to see LVT used effectively?
Outside of California "you paid $500k for your house, so we're gonna tax you on $500k" is not how property taxes work. The town/city/county typically does property assessments on regular basis (usually annually). These are based on doing comparisons with like houses in your neighborhood and are equal prone to "2 blocks over is way more desirable".
> I understand the benefits of LVT, but how do you solve this?
Georgism[1], which I'm fascinated by. One way to organise it is to ask people how much tax they're willing to pay, from which the land value can be derived (as that's the real point of assessing land value for someone who isn't willing to sell that's the real order of things). However, if someone bids on the land for that price you must sell.
> Are there any good examples of governments that use LVT in practice?
I thought there were only one or two places using LVT but it appears there are quite a few[2], but it's rarely pure LVT.
Proposed mechanism: You declare the value of your land, but the government can buy it at the declared price if they want to. This also makes land acquisition for infrastructure straightforward and transparant.
There is a risk that the government will increase taxes such that people can't declare high land prices, which allows the government to buy up land for cheap. I haven't found a mechanism for that yet.
It will be interesting to see if Texas ends up with some sort of Proposition 13 equivalent given property values and property taxes have been increasing a pretty significant rate.
It seems like the Texas Homestead Exemption Act is starting to morph into something analogous to Prop 13. Perhaps if there's enough growth in tech jobs (and more billionaires start hiding out there) they'll end up with an income tax like California and New York.
Just let property owners declare a value for their land, and give anyone the right to buy it for 120% of that value at any time, with the existing owner given a grace period where they can restate their estimate.
I don’t think that’s a meaningful difference. It would take an extreme property tax to actually incentivize an empty field over productive use of that space.
It might in theory make a difference when considering replacing a 40 story building with a 42 story one, but in practice you really don’t see that kind of construction project. In that context pushing for larger jumps before replacement might actually be economically and environmentally beneficial.
It’s not just empty fields. It’s also empty buildings. A grocery store sized unit sat vacant in my San Francisco neighborhood for over a decade. Cheap property tax due to Prop 13. Owners wanted to wait for the “right offer” to develop it.
In Australia at least local government rates are based on "improved property value", i.e. you get taxed more from building a house on your land. It absolutely does lead to land-sitting even in higher density inner-city suburbs.
Land value taxes are not functionally different than just regular property taxes in the places where it matters. In all of the areas that are in the worst of the housing crisis, property value is already dominated by land value; LVT doesn't really change much.
The problem, just like the source says, is that the tax is too low, not mention the absolute disaster that is Prop 13 in California.
The advantages of a land-value tax is the central idea of Georgism/Distributism. There have been some interesting discussions about this on HN. Recently: https://news.ycombinator.com/item?id=29493005
> Land value taxes are even better. Property taxes provide a disincentive to making the land more productive.
I could get on board with this if cost to build and demolish were considered. We have a lot of SFHs that don't make sense to turn into town homes yet because the value of the home on property + demolition costs + cost to build new townhomes on property is greater than what those townhomes could sell for.
More to the point, a blind land value tax could create a lot of waste through otherwise unproductive land repurposing (only productive because the tax makes it so).
That seems like the point, though - the land tax makes it so that it is productive to add more density. We want people to demolish that SFH and turn it into a townhome because we need more housing, so that's a feature of the tax, not a bug.
I'm not clear on how land value taxes would incentivize the right kinds of units. For instance, would a land value tax incentivize the creation of tiny bachelor apartments, or larger apartments that families can use? We need incentives for both, and larger units are not very common these days.
Why does tax policy need to directly influence the mix of 1bdr and 3bdr apartments? Renters who need 3bdr apartments have enormous influence over the market already.
The LVT is meant to stay neutral and let the market figure it out. That would probably mean more density compared to today (where lots of traditional houses take up massive amounts of space while paying artificially low tax), but if people are willing to pay a fair price for a big place then that's what will get built.
This could have extremely negative side effects.
A really expensive house on cheap land in some exurb would be comparatively cheap, thus encouraging sprawl.
Old, cheap high density housing in desirable cities would all of a sudden become really expensive, hence massively acceleration gentrification.
Exclusionary zoning exists because of NIMBYism. NIMBYism exists because of the financial incentive to raise land values. That financial incentive exists because of a lack of taxation on land value.
One of the many reasons exclusionary zoning needs to die in a fire. The urban housing crisis has been allowed to grow for decades, so we're long past any single solution, but I'm increasingly convinced no combination of fixes can succeed while exclusionary zoning still exists.
Japanese-style inclusionary zoning splits the difference nicely between making sure people don't live next to loud, potentially dangerous industry and allowing lots of mixed-use, human scale developments of varying density.
There is zoning, and then also the cost of development. Here, the reason why no starter homes are being built is because the cost to develop a subdivision is so high that no one can make a profit selling inexpensive homes.
The original purpose of the tax is to reclaim the land if the possessor can not make enough money off the land, or prosper some other way, to pay the tax.
A mortgage acts like this too and if the tax was insignificant by comparison it would seem so fair but at least a mortgage can eventually be paid off in full. Then the bank no longer has an interest but the taxman never stops.
Taxes always go up but economic fortunes do not, when these become out-of-phase the original purpose is fulfilled.
This is what makes people demolish perfectly good buildings to reduce the taxable value of their property while they try to hold on to the land during a downturn.
Mortgages don't make people act like this.
For the greatest prosperity of the average citizens in a sustainable system, you tax nothing but commerce.
The purpose of taxing the income or property of average citizens is to repress opportunity for the majority.
Not in all cases. I live in a Resource Conservation area where no lot less than 10 acres in size can be subdivided per zoning laws. The zoning is set as it is to preserve watersheds, wildlife, etc. There are limits (by ratio to land area) that dictate structure density, amount of impervious substrate that can exist within the perimeter of my property, etc. Just because I own over 10 acres doesn't mean I can sell my property to a developer so that they can build four high rise apartment buildings and turn a rural area into a burgeoning metropolitan hub (while destroying a large swath of forest in the process).
We pay high property taxes (which are split value taxes, by the way) relative to other rural areas in the region. That is, we are taxed for the virtue of owning relatively large plots of land (for our area) that come with the protections afforded by the zoning laws--even though our sparsely-developed properties and the characteristics thereof provide benefit to all in our area, including city dwellers (e.g. readily available and clean drinking water, maintaining a healthy ecosystem), for which a value could be assessed that would result in lowering our taxes.
That said, I purchased the property specifically for the Resource Conservation zoning protections, as did my neighbors--and we'd have the zoning laws set no other way regardless of the cost of doing so.
Trying to jam more people into the same finite amount of space is not a sustainable solution (here's looking at you, Bay Area). A byproduct of the recent pandemic was that a significant number of people beta tested relying on technology to get their job done independent of where they were physically located. I would argue it generally worked quite well (though not in all cases).
Though a more ambitious plan than merely increasing taxes and hoping that more housing is developed, why not incentivize people to move to less populated area with the intent of promoting a more-even distribution of population density over time; incentivize medium and large businesses to either permit remote work or establish and maintain local/regional offices if remote work is not conducive to their lines of business or their corporate culture; and fund timely development of new and improvement of existing infrastructure that would make previous two goals achievable?
The way people in the US plan for old age and retirement, and the way they are treated by society, is terrible and property taxes are aspect of that. But the only way you should be able to own land tax free is if there are no government services provided on that land. No utilities, no public road, no emergency services, no municipal services. I don't know of anywhere in the US where that is an option. Unless you're saying you want that funding to come from a different source, which would mean a total restructuring of the tax system in the majority of localities.
I don't see how that's relevant, not all land is equally well suited for housing, especially among the elderly who are likely to need some sort of living assistance and regular access to healthcare.
property taxes are terrible for old people. you should be able to buy a reasonable amount of land tax free.
I think something like California's Prop 13 that puts a cap on property tax increases is a better idea -- but it should only apply to owner occupied primary residences, not second homes or investment properties.
Fairly sure this is to increase population density in the area, so selling old homes for tear downs would be a net gain.
The more reasonable approach to this would be discounts for the primary residence, and possibly discounts for populated units, depending on if you are targeting home owners / overall population and housing cost.
Quarter acre per family might make sense across the US as a whole with large swathes of empty land across the middle, but it makes no sense if you look at the average individual given the percentage of the country living in urban areas.
Property Taxes aren't terrible for old people. How the mille-rate is set is terrible for old people.
A fixed mille-rate results in taxes going up as value goes up. This might be difficult to plan for and manage. However, many cities will simply put a lien on the property and collect when the property is sold/transferred/person dies.
However, this isn't necessarily how things need to be done. In New Zealand, the mille-rate is set to clear the budget. That way, the mille-rate changes with the city's budget, not valuations.
If the city wants to do more, they put it into the budget and say "do you want to pay for it?". Then the mille-rate is changed and everyone's taxes change.
If your house changes value, your taxes don't change! Unless your neighborhood changes its relative valuation, then it might go up or down.
Most states and counties I’ve lived in in the southeast US either exempt or minimize property taxes on residents that are over 65.
In fact, my current area (Cobb county, GA) nimbys keep trying to block assisted living residences. The argument is that old people move in, don’t pay into local funds, but the burden is hoisted on other younger families instead.
1/4 acre is the roughly the footprint of 432 Park Ave which is worth billions of dollars. There's no way a single old guy should be able to squat on that tax free.
The lack of property/land value taxes hurts anyone who isn't retired. I care much more about poor young people who get priced out of moving to a better job in the city than an old person who is "forced" to sell their multi-million dollar single family home. If an old person insists on living in a place where they can't afford property taxes, there are plenty of people willing to pay their property taxes until they pass in exchange for a stake in equity of their home.
> property taxes are terrible for old people. you should be able to buy a reasonable amount of land tax free.
When LVT is used to fund UBI, that ability is automatic: the "break even" point (where your taxes minus dividends are zero) would represent you owning a "reasonable amount of land" (as measured by value). If you own more than that, you pay for it; if you own less than that, you're paid for it.
In many states low income seniors can opt out of property taxes and take a lien on the house instead. This way they feel zero tax pressure no matter what happens to the local economy.
Examples are California Tax Postponement Program and New Jersey senior freeze.
This would certainly impact people with older houses disproportionately relative to the wealthier folks doing the teardowns, though. Probably a political downside.
What's the difference between the two in reality? Theoretically, with a land value tax, "improvements" (however that's defined) aren't added to the final tax calculation. However better-looking homes are then a signal that drive up demand for (and therefore price of) land so ultimately it seems LVT does punish improvements if only indirectly.
> What's the difference between the two in reality?
One taxes the land and the building(s) on it. The other only taxes the former.
In practice, this means that while property taxes and land value taxes both penalize speculation, LVTs more precisely do so, without the side effect property taxes have of penalizing construction.
> However better-looking homes are then a signal that drive up demand for (and therefore price of) land so ultimately it seems LVT does punish improvements if only indirectly.
Even assuming that effect does happen, it'd be considerably worse under a property tax.
Almost all property people buy and sell is productively used, and separating the value of land and improvements is practically impossible.
Edit: As a weird example, subtracting what it would cost to build my California house from its current market value gives a value for the lot far lower than the actual market price of an empty lot in this location. This isn't just due to the depreciation of the construction (2012) but to market inefficiencies. It's actually the norm in our town. Only developers with economies of scale can really afford to build here, modulo a few wealthy families who are building their dream home without concern for ROI.
> gives a value for the lot far lower than the actual market price of an empty lot in this location
Retrofitting or tearing down a house in California is expensive. Particularly if it's an old house where there could be e.g. lead or asbestos. Clean lots (presuming it wasn't previously a laundromat) command a value from the baggage they clearly don't bring.
I'm struggling to make sense of the cause and effect in the article:
"The high cost of property taxes have long pushed away speculative investors as it has pushed the carrying cost beyond what is profitable to hold as a passive investment long-term."
Alright, so now the speculative buyers are gone and we're dealing with ordinary home buyers that actually occupy their home. These genuine owners are paying high property taxes. Next:
"This has led to is a glut of high quality housing at very low prices. The amount of money one needs to save up for a downpayment in Chicago on a 2BR in the city center is 5x lower than in San Francisco or New York."
How does specifically a high property tax for genuine buyers lead to lower prices? Because of less demand from speculators? If so, why not just get rid of speculative buying (simply make it illegal)? What does it have to do with property tax for ordinary citizens?
And what on earth does Chicago have to do with San Francisco or New York?
> How does specifically a high property tax for genuine buyers lead to lower prices? Because of less demand from speculators?
Speculators are forced to sell, because the cost of keeping too many houses locked down is high and starts to show on their books, so they have to explain it to the investors, that go away unsatisfied, and so on.
Of course, that only makes a difference if there are many unused houses.
Also the idea is that as prices fall, the absolute value of the tax falls, but speculators still do not have a motivation to buy them, because the price isn't expected to rise.
> If so, why not just get rid of speculative buying (simply make it illegal)?
Because you will need an entire book of rules, that lawyers will use to get a lot of money, and rich people will use to make the tax not apply to them. (But there are some simple rules that can only be gamed a bit. Maybe those are enough.)
Because a suppression of price would also suppress new development? Why would a builder build anything in an area of low profitability, in a backdrop of rising costs and worker shortages?
So how come there's ample low cost high quality housing in Chicago?
The same remark applies to home owners. Your property won't rise in value, so why buy it? You must really want to live in the area, I guess.
And yes, I know the point of a house is to live in it, but almost everywhere it has a double function in also being an appreciating retirement fund.
For now my theory is that a lot of speculative supply got dumped, leading to a one time effect.
What author is saying is that if a property has a high yearly ongoing costs, it becomes tougher to just hold onto it and not put it into the market i.e. this causes increase in supply. If I have a $10k/year expense on a property, I am forced to at least generate a yearly $10k+ from the property. This would keep the rentals and property prices in the area in check
The elephant in the room is the amount of housing supply being held by banks and private equity in an effort to shore up housing prices. They can afford high property taxes. Your elderly parents might not be able to.
Obama should have let the bankers twist in the wind when the citizenry was out for blood in 2008. They repaid him by channeling money to Republicans. Put them all in jail.
On the other hand, it also increases the demand to rent property on AirBnB, if that's allowed and it's a desirable area. Tourists can pay more than locals.
In general, as costs go up, the more there is incentive to try to cater to wealthier customers.
That can be right in the short term, but in the long term you'd expect developers to stay out of the market, so how is it that Chicago has a "glut of high quality housing at very low prices"?
>> now the speculative buyers are gone and we're dealing with ordinary home buyers that actually occupy their home. These genuine owners are paying high property taxes.
Homeowners are concerned with the size of the deposit required, the size of the loan needed, and ongoing costs (inc taxes). This tax will likely mean a smaller deposit and loan than would otherwise be the case. This could be offset by higher ongoing costs by the property tax.
For a speculator, they have the same concerns as a homeowner, but most significantly the potential for capital gains. Yield also comes into it, but let's face it - without strong capital gains no one would be paying these prices (homeowners included).
Lower potential for capital gains effects speculator demand more than homeowner demand.
> These genuine owners are paying high property taxes.
Not if the tax base goes down. Which is the point.
> If so, why not just get rid of speculative buying (simply make it illegal)?
This makes the lawyer rich too. It’s not a smash-and-grab at a Walgreens. You can’t put real estate cops on every deal. If price is expected to go up, people will speculate.
I doubt speculator demand has anything to do with anything in the long term.
I also doubt that developers would bother with a market like the one described. Why not go to some other state/city where construction costs are low and property taxes are also low?
Blackrock is currently propping up residential property prices in Atlanta to keep the bottom from falling out of the housing market. As the "cheapest of the Big 6", once Atlanta falls, other cities will, as well.
General contractors don't just do general contracting, and it's not like tech where you can pick up and move anywhere there's internet.
I think it is utopia to compete with investors on price. Sure, you can make it too expensive for them. It will be too expensive for everyone else too.
Why not make property tax cumulative with the amount of property owned and impose a progressive tax here? It would have an equalizing effect on ownership and speculation would be less attractive for those that already own o lot of properties.
Sure, you have to fix a lot of holes to circumvent taxes so that not every company creates a large amount of holdings, but such strategies are a problem with every tax.
To now say a high property tax would scare away investors doesn't sound workable at all.
I don’t know about NY, but in SF property taxes are effectively frozen based on the value of your home when purchased.
I rented a house once in West Portal where the landlord was paying property taxes on the 1970 value of the home, which was something like $70k. The owner was gifted this house and taxes basis from their parents, who originally bought it. The tax bill came out to just a few thousand dollars as of 2020.
Meanwhile my neighbor at the time bought their house for $3m and was paying something like $35k.
I thought about writing the property taxes in front of each house on the sidewalk with sidewalk chalk to make a point how messed up this tax policy is, but I opted instead to keep the peace and do nothing.
This loophole is used by families in CA as a way to pass assets to their heirs. The worst part is the tax rate also gets passed down, but one generation tops.
San Francisco (all of CA) has very low property taxes compared to non-CA cities. Because of Prop 13, property taxes are limited to 1% of the purchase price of the home (appraised values can change a max of 2%/yr).
As a result, my neighbor has a house with an effective tax rate of <0.1% ($3,000/yr on a single family house worth >$3M).
I think New York means NYC in this context and NYC has incredibly low property taxes. I believe it's due to a cap on maximum annual increases. New York State tends to have high property taxes on the other hand.
I'm less familiar with San Francisco, but I wouldn't be surprised if they had low property taxes due to Prop 13.
Even if this is provable, why not have a progressive property tax rate? Owner occupied properties can be charged half the rate of rented properties. Rather than increase it for everyone and making it harder on the very people who are likely to sell it to a speculative investor.
It's also desirable to nudge owner occupied properties towards efficient uses.
For instance, there's loads of large family houses being occupied by empty-nesters, while those trying to raise a young family are squashed into undersized townhouses.
Shifting the cost-base from "pay a huge mortgage and a tiny property tax" to "pay a moderate mortgage and an moderate property tax" means it's more likely to be worth the hassle of moving to a smaller house when you no longer need the space.
Landlords will just pass the extra tax to tenets. And mostly low income tenets will bear the cost as they are least likely to have enough money for down payment.
I agree that the cause and effect is backwards, but for a different reason. High property values lead to lower property tax rates (but not necessarily dollar amounts). The total property tax is largely set by how much money is needed to provide services to a place, which is mostly independent of property values (though I guess stuff like building schools is more expensive if it costs more to buy the land). NYC also has a city income tax further lowering the amount of money that needs to be raised.
If I have $10M to spend on property to take out of the market and hold for a period, do I buy where it will cost me 250k per year in taxes or 50k per year in taxes?
If you're a speculator, you'll buy it wherever the expected profit, after taking out all expenses, is the highest.
If the tax is high in a location where they think they can flip the house for a 50% gain in a few years that's still better profit than a lower tax in a place where they'll gain 5% in a few years. So the property tax doesn't, all by itself, matter to the speculator. It's just a cost of doing business.
A high property tax does, however, hurt the person who just wants a house to live in it and doesn't care about being a speculator.
This is local democracy in action. Vested landowners can put up barriers to entry to prop up their investments. They can also hand it down to their family, entrenching wealth for generations. Sucks to be an outsider.
The push back on Prop 13 blows my mind. "What will actually make housing cheaper, is to make costs higher, actually."
Ok you've forced a bunch of house painters and restaurant owners to sell and move out. More tech workers buy the houses, more large chains buy the retail space, now what?
Prop 13 solved two problems at once. It forced a reduction in the out-of-control government spending, and it saved seniors from losing their houses. IMHO the only problem with Prop 13 was the "grandfathering" clause. The cuts should have been perpetual and across the board.
> It forced a reduction in the out-of-control government spending
No, it didn't. California just kept adding taxes everywhere else to make up the difference and still had an annual deficit most of the 13 years I lived there.
> It saved seniors from losing their houses
Why are seniors magically allowed to be immune to basic market forces when no one else is?
Grandma is a millionaire. She can take out a reverse mortgage to pay her taxes and she'll still be a millionaire. Or she can agree to a lien that pays her taxes upon her death or move. We don't need to worry about grandma losing her house.
It created a landed gentry in California and has caused out of control housing prices. The world changes, trying to insulate one particular group from change is deeply unfair.
Inexpensive senior housing comes from the same place inexpesive housing for everyone else does: building more housing.
Unlike first-time buyers, though, for whom asset inflation is itself strictly a tax (paid by them, to seniors, but far more so, banks and investors), price inflation of an asset you already hold is free money.
> The problem is that the land tax component of a traditional property tax is too small to deter land speculation. Although property taxes vary from place to place, they are typically between 1% and 2% of the property's total value paid annually. If inflation is low, then for longtime property owners, this amounts to roughly the same cost as if they paid a one-time sales tax on the property of between 10% and 20%. Thus, the property tax applied to building values inflates their price by between 10% and 20%. And the property tax applied to land value allows 80% to 90% of publicly-created land value to accrue as a windfall to landowners. Thus, typical land taxes are too weak to discourage land speculation.
Property taxes discourage existing inventory from being taken off the market in order to speculate via property holding, at the expense of also discouraging new building.
Land value tax discourages holding vacant or under-built property, at the expense of lowering the cost of the land. This means existing homeowners won’t be able to sell their old homes for as much as they could if fewer surrounding properties are developed (more modern, better built, larger, with more units), because their old home is closer to being worth the raw value of the land.
If you want to sell a $50,000 home for $500,000 because it sits on land that grew from being worth $10,000 to $450,000, then a LVT is terrible for you: you need to put in actual work improving your property rather than just sitting on a decrepit old building and selling it for a profit. The problem in the US is that the voters who mostly own their home can’t stomach their home value decreasing: that reduces their paper wealth as well as their ability to take out loans and second mortgages for things like college or car payments. So politically it’s a hard solution to push for (even if, on net, it would help the community be stronger).
Doesn't this presume that all property is taxed at a flat rate? Wouldn't the answer be to split the property based on what the city wants to accomplish? Then empty land can be taxed at a different rate to property with a residence on it (or whatever priority the city would apply).
Check out all the different tax rates that Wellington, New Zealand applies to a property [1]. I count 50!
There is so much incompetence and political game playing regarding property taxes. I work in commercial real estate development. We negotiated a TIF district in a small midwestern town to help redevelop their vacant mall. In theory, if we could redevelop the mall and fill it with new stores, the sales taxes and property taxes from this growth would greatly benefit the city over the long term and help finance this risky project.
First we came into battle with the school district. They would not allow us to build apartments on the mall site because "renters don't contribute to property taxes for the school", even though the citizens of this town need rentals because not everyone can afford a home. It then came to light that the city had been paying the school district out of their operating budget... which is illegal, schools can only be funded by property taxes. But would any politician want to go to war with the school district because they had accidentally been paying them illegally with taxpayer dollars? No way, they'd be voted out for attacking schools. So the school district continues draining the operating budget from the city to this day, while also getting their share of property taxes.
Enter the county assessor. We went back through all the assessment records and discovered that the county assessor had not re-assessed the commercial properties in the area for 8 years... meanwhile jacking taxes up on single family homes annually. Essentially they were giving businesses a freeze on property taxes while shifting the burden onto homeowners. If the county wasn't reassessing commercial real estate, than our TIF development couldn't demonstrate growth as the taxes would not change! So we tried to shake the hornets nest and let the county and city know that their taxpayers were being taken advantage of...
What was the end result? Why had they not been reassessing commercial properties? Incompetence, the assessor was some idiot who was voted in because he had the "D" next to his name and did not know anything about assessing property taxes and argued that he was simply "too understaffed" to assess commercial properties for the last 10 years.
Now imagine a whole country where massive, expensive errors like this can play out without anyone noticing for nearly a decade... it's frightening how broken, corrupt, or incompetent our government is in the United States.
In theory, decentralized government delegating various decisions closer to the people allows for more oversight and flexibility. In practice, in most places the oversight doesn't happen and just results in local politicians doing what they want, and simply enforcing a one-size-fits-all rule of law would be an improvement.
Sorry this was annoying and messy for you, but I look at many other countries and on balance this doesn't sound too bad, and certainly not "broken or incompetent" as if the US was on the verge of collapse because of things like this.
If anything, this sounds like a system working, and you doing a bit of whining. Yeah, there's political game playing, that's called the price of localism and democracy.
A city breaking the law for decades by paying the school district illegally and no one doing anything about it out of fear of getting bad PR for their election campaign... or mishandling property assessments for 8 years are all pretty huge examples of incompetence and are not something I expect in a first world country.
It's the exact opposite of the system working. It's people being given power because of their party rather than their qualification and it indicates a greater sickness in politics in which we have become binary sports fans rooting for our team no matter the cost or quality of the candidate.
To be fair I have no clue how broken property taxes are in Europe or Japan or other first world places, but this ordeal was eye opening to me having grown up assuming our local governments were held to a higher standard.
High property taxes are clearly not intrinsically good; they're passed on to renters, and so they decrease affordability. Land value taxes sidestep this (increasing density decreases marginal tax burden on tenants), but they're not going to happen. You have to design policy for the world we actually have, not the one you'd prefer to live in.
(Property taxes are a real problem where I live; we're an upper-middle-class enclave directly adjacent to the roughest part of Chicago, and affordability issues prevent people in Chicago from moving across the border to get our services. In the world we actually live in, annexing the Village I live in would make more public policy sense than raising property taxes, which gives you a sense of how clumsy those taxes are as an intervention.)
LVTs are a panacea for the concerns paper wealthy. They fear taxes on stock trades, capital gains taxes, and other forms of paper wealth tax; a LVT lets them point at the homes of the masses and say "Look, there is an easy to track and tax asset class, sink your teeth into that and not my stock portfolio or trades."
Financial transaction taxes aren’t really a concern for people who own stocks. Trades used to cost money before the zero-fee brokerages. An FTT will just be like everyone having to pay a slightly higher fee: a little less liquidity, slightly wider spreads, not much cost if your investment strategy is shaped roughly like ‘buy SPY and then do nothing for a long time, then sell some and maybe buy some bonds’.
It just doesn't matter. Land value taxes aren't going to happen. We need to make smarter decisions with the policy levers we actually have, and not pretend we'll have levers we don't.
This is one area where (I hate to say it) the red states have tended to do a better job than the blue states.
Take Texas as an example. Up until this last year at least, Texas had relatively low property values but high property taxes. But high property taxes on a $200,000 house aren't the end of the world.
But here's a big one: in Texas, seniors (65+) can defer their property taxes to be settled upon their death. This allows seniors to stay in their house if they really want but incentivizes seniors to downsize to avoid passing on that liability onto their children.
This is exactly what you want.
Compare that to California, for example. "But what about the Seniors?" led to Prop 13, which was a massive tax giveaway to Disney and affluent property holders. Capping property taxes deprives the state of taxes to fund services for no good reason.
Even worse, when your children inherit that house, they inherit the house on a stepped up basis (meaning they pay no capital gains tax and the capital tax base gets reset to the market value so if you sell immediately you won't pay any CG tax) and children and grandchildren can inherit the artifically low property tax rates.
New York has a different set of problems. A big one is that single family homes are subsidized. A $1m SFH will pay less than half the property tax of an equal value condo. And there's all sorts of caps on property taxes on SFHs too.
Additionally a $100m condo only pays about 10-15x the property tax of a $1m condo in NYC.
I'm a big fan of making property speculation less lucrative. High property taxes are a good thing. We need to stop giving away money under the auspices of "but what about the Seniors?"
> children and grandchildren can inherit the artifically low property tax rates
Grandchild -> child is readjusted to market rate property taxes. Only parent -> child IFF both are and continue to be primary homes, does it receive the previous tax treatment.
Instead of taxes, I prefer depreciation terms (see japan), which incentivizes new construction and does no harm to those that continue to occupy the land in old age. you’ll also find that older houses go down in value as expected.
Coming from a state with a higher property tax rate I can qualify this by saying higher is not better. Taxes are always a disincentive. While the author claims it is a disincentive to sitting on a property and is comparing it to the effect on price like the FED's interests rates, these comparisons are myopic. He misses the bigger picture of longevity of private property ownership, the Constitutional protections of a property owner, and the inevitable results of the state seizing the property for back taxes. The long term benefits of the first two are long proven and the cold destruction of a member of a community the result of the last.
Oh yeah, and the higher tax gets passed to the renter/leasee in higher rents and is a further disincentive to usage and investment.
Agreed on the taxes being (at least partially) passed on to renters in a typical case.
However, don’t understand how you are linking constitutional protection of property ownership with tax rates… it is obviously not an absolute because we do pay property taxes… so this is a matter of degrees.
Free society chooses to find the right level. It does not imply negation of bill of rights…
Readit News
[1] In practice and as a primary means of property taxation. For example, proponents of wealth taxes talk about Switzerland, but the percentage of wealth that gets taxed there is quite small and nowhere near what proposals for wealth taxes in the US are aiming for. In other words, what's a good country to look at to see LVT used effectively?
Georgism[1], which I'm fascinated by. One way to organise it is to ask people how much tax they're willing to pay, from which the land value can be derived (as that's the real point of assessing land value for someone who isn't willing to sell that's the real order of things). However, if someone bids on the land for that price you must sell.
> Are there any good examples of governments that use LVT in practice?
I thought there were only one or two places using LVT but it appears there are quite a few[2], but it's rarely pure LVT.
[1] https://en.wikipedia.org/wiki/Georgism
[2] https://en.wikipedia.org/wiki/Land_value_tax#Implementation
Had a good summary of land valuation problems
There is a risk that the government will increase taxes such that people can't declare high land prices, which allows the government to buy up land for cheap. I haven't found a mechanism for that yet.
Fight over increased property taxes in Texas becoming political https://www.youtube.com/watch?v=gzUwoFVUc_I
Texas voters to decide on 2 propositions that could impact property taxes https://www.youtube.com/watch?v=Nz67VXkjRfg
It seems like the Texas Homestead Exemption Act is starting to morph into something analogous to Prop 13. Perhaps if there's enough growth in tech jobs (and more billionaires start hiding out there) they'll end up with an income tax like California and New York.
It might in theory make a difference when considering replacing a 40 story building with a 42 story one, but in practice you really don’t see that kind of construction project. In that context pushing for larger jumps before replacement might actually be economically and environmentally beneficial.
Low property tax (because it's unimproved) plus real estate speculation.
The problem, just like the source says, is that the tax is too low, not mention the absolute disaster that is Prop 13 in California.
I could get on board with this if cost to build and demolish were considered. We have a lot of SFHs that don't make sense to turn into town homes yet because the value of the home on property + demolition costs + cost to build new townhomes on property is greater than what those townhomes could sell for.
More to the point, a blind land value tax could create a lot of waste through otherwise unproductive land repurposing (only productive because the tax makes it so).
Zoning usually dictates what's allowed and is indifferent to tax rates
Japanese-style inclusionary zoning splits the difference nicely between making sure people don't live next to loud, potentially dangerous industry and allowing lots of mixed-use, human scale developments of varying density.
http://urbankchoze.blogspot.com/2014/04/japanese-zoning.html
A mortgage acts like this too and if the tax was insignificant by comparison it would seem so fair but at least a mortgage can eventually be paid off in full. Then the bank no longer has an interest but the taxman never stops.
Taxes always go up but economic fortunes do not, when these become out-of-phase the original purpose is fulfilled.
This is what makes people demolish perfectly good buildings to reduce the taxable value of their property while they try to hold on to the land during a downturn.
Mortgages don't make people act like this.
For the greatest prosperity of the average citizens in a sustainable system, you tax nothing but commerce.
The purpose of taxing the income or property of average citizens is to repress opportunity for the majority.
This is by design.
We pay high property taxes (which are split value taxes, by the way) relative to other rural areas in the region. That is, we are taxed for the virtue of owning relatively large plots of land (for our area) that come with the protections afforded by the zoning laws--even though our sparsely-developed properties and the characteristics thereof provide benefit to all in our area, including city dwellers (e.g. readily available and clean drinking water, maintaining a healthy ecosystem), for which a value could be assessed that would result in lowering our taxes.
That said, I purchased the property specifically for the Resource Conservation zoning protections, as did my neighbors--and we'd have the zoning laws set no other way regardless of the cost of doing so.
Trying to jam more people into the same finite amount of space is not a sustainable solution (here's looking at you, Bay Area). A byproduct of the recent pandemic was that a significant number of people beta tested relying on technology to get their job done independent of where they were physically located. I would argue it generally worked quite well (though not in all cases).
Though a more ambitious plan than merely increasing taxes and hoping that more housing is developed, why not incentivize people to move to less populated area with the intent of promoting a more-even distribution of population density over time; incentivize medium and large businesses to either permit remote work or establish and maintain local/regional offices if remote work is not conducive to their lines of business or their corporate culture; and fund timely development of new and improvement of existing infrastructure that would make previous two goals achievable?
USA has about 2.5 billion acres. 1/4 acre per person in an average area tax free is reasonable.
I don't see how that's relevant, not all land is equally well suited for housing, especially among the elderly who are likely to need some sort of living assistance and regular access to healthcare.
property taxes are terrible for old people. you should be able to buy a reasonable amount of land tax free.
I think something like California's Prop 13 that puts a cap on property tax increases is a better idea -- but it should only apply to owner occupied primary residences, not second homes or investment properties.
The more reasonable approach to this would be discounts for the primary residence, and possibly discounts for populated units, depending on if you are targeting home owners / overall population and housing cost.
Quarter acre per family might make sense across the US as a whole with large swathes of empty land across the middle, but it makes no sense if you look at the average individual given the percentage of the country living in urban areas.
A fixed mille-rate results in taxes going up as value goes up. This might be difficult to plan for and manage. However, many cities will simply put a lien on the property and collect when the property is sold/transferred/person dies.
However, this isn't necessarily how things need to be done. In New Zealand, the mille-rate is set to clear the budget. That way, the mille-rate changes with the city's budget, not valuations.
If the city wants to do more, they put it into the budget and say "do you want to pay for it?". Then the mille-rate is changed and everyone's taxes change.
If your house changes value, your taxes don't change! Unless your neighborhood changes its relative valuation, then it might go up or down.
In fact, my current area (Cobb county, GA) nimbys keep trying to block assisted living residences. The argument is that old people move in, don’t pay into local funds, but the burden is hoisted on other younger families instead.
The lack of property/land value taxes hurts anyone who isn't retired. I care much more about poor young people who get priced out of moving to a better job in the city than an old person who is "forced" to sell their multi-million dollar single family home. If an old person insists on living in a place where they can't afford property taxes, there are plenty of people willing to pay their property taxes until they pass in exchange for a stake in equity of their home.
When LVT is used to fund UBI, that ability is automatic: the "break even" point (where your taxes minus dividends are zero) would represent you owning a "reasonable amount of land" (as measured by value). If you own more than that, you pay for it; if you own less than that, you're paid for it.
A quarter acre in Palo Alto, though?
Examples are California Tax Postponement Program and New Jersey senior freeze.
Land value tax incentivises turning a single-family home into a multi-unit building. Property tax explicitly discourages that.
One taxes the land and the building(s) on it. The other only taxes the former.
In practice, this means that while property taxes and land value taxes both penalize speculation, LVTs more precisely do so, without the side effect property taxes have of penalizing construction.
> However better-looking homes are then a signal that drive up demand for (and therefore price of) land so ultimately it seems LVT does punish improvements if only indirectly.
Even assuming that effect does happen, it'd be considerably worse under a property tax.
Edit: As a weird example, subtracting what it would cost to build my California house from its current market value gives a value for the lot far lower than the actual market price of an empty lot in this location. This isn't just due to the depreciation of the construction (2012) but to market inefficiencies. It's actually the norm in our town. Only developers with economies of scale can really afford to build here, modulo a few wealthy families who are building their dream home without concern for ROI.
is routinely done in countries in which variants of land value tax are implemented.
Retrofitting or tearing down a house in California is expensive. Particularly if it's an old house where there could be e.g. lead or asbestos. Clean lots (presuming it wasn't previously a laundromat) command a value from the baggage they clearly don't bring.
Isn't that like saying income tax disincentives people from making more money.
"The high cost of property taxes have long pushed away speculative investors as it has pushed the carrying cost beyond what is profitable to hold as a passive investment long-term."
Alright, so now the speculative buyers are gone and we're dealing with ordinary home buyers that actually occupy their home. These genuine owners are paying high property taxes. Next:
"This has led to is a glut of high quality housing at very low prices. The amount of money one needs to save up for a downpayment in Chicago on a 2BR in the city center is 5x lower than in San Francisco or New York."
How does specifically a high property tax for genuine buyers lead to lower prices? Because of less demand from speculators? If so, why not just get rid of speculative buying (simply make it illegal)? What does it have to do with property tax for ordinary citizens?
And what on earth does Chicago have to do with San Francisco or New York?
Speculators are forced to sell, because the cost of keeping too many houses locked down is high and starts to show on their books, so they have to explain it to the investors, that go away unsatisfied, and so on.
Of course, that only makes a difference if there are many unused houses.
Also the idea is that as prices fall, the absolute value of the tax falls, but speculators still do not have a motivation to buy them, because the price isn't expected to rise.
> If so, why not just get rid of speculative buying (simply make it illegal)?
Because you will need an entire book of rules, that lawyers will use to get a lot of money, and rich people will use to make the tax not apply to them. (But there are some simple rules that can only be gamed a bit. Maybe those are enough.)
Nobody is willing to pay as much up front for housing that has higher ongoing costs.
So how come there's ample low cost high quality housing in Chicago?
The same remark applies to home owners. Your property won't rise in value, so why buy it? You must really want to live in the area, I guess.
And yes, I know the point of a house is to live in it, but almost everywhere it has a double function in also being an appreciating retirement fund.
For now my theory is that a lot of speculative supply got dumped, leading to a one time effect.
Obama should have let the bankers twist in the wind when the citizenry was out for blood in 2008. They repaid him by channeling money to Republicans. Put them all in jail.
In general, as costs go up, the more there is incentive to try to cater to wealthier customers.
Homeowners are concerned with the size of the deposit required, the size of the loan needed, and ongoing costs (inc taxes). This tax will likely mean a smaller deposit and loan than would otherwise be the case. This could be offset by higher ongoing costs by the property tax.
For a speculator, they have the same concerns as a homeowner, but most significantly the potential for capital gains. Yield also comes into it, but let's face it - without strong capital gains no one would be paying these prices (homeowners included).
Lower potential for capital gains effects speculator demand more than homeowner demand.
Not if the tax base goes down. Which is the point.
> If so, why not just get rid of speculative buying (simply make it illegal)?
This makes the lawyer rich too. It’s not a smash-and-grab at a Walgreens. You can’t put real estate cops on every deal. If price is expected to go up, people will speculate.
I also doubt that developers would bother with a market like the one described. Why not go to some other state/city where construction costs are low and property taxes are also low?
General contractors don't just do general contracting, and it's not like tech where you can pick up and move anywhere there's internet.
Why not make property tax cumulative with the amount of property owned and impose a progressive tax here? It would have an equalizing effect on ownership and speculation would be less attractive for those that already own o lot of properties.
Sure, you have to fix a lot of holes to circumvent taxes so that not every company creates a large amount of holdings, but such strategies are a problem with every tax.
To now say a high property tax would scare away investors doesn't sound workable at all.
This was such a laughable comparison because BOTH of these cities have high property taxes compared with more affordable cities in other states.
I rented a house once in West Portal where the landlord was paying property taxes on the 1970 value of the home, which was something like $70k. The owner was gifted this house and taxes basis from their parents, who originally bought it. The tax bill came out to just a few thousand dollars as of 2020.
Meanwhile my neighbor at the time bought their house for $3m and was paying something like $35k.
I thought about writing the property taxes in front of each house on the sidewalk with sidewalk chalk to make a point how messed up this tax policy is, but I opted instead to keep the peace and do nothing.
This loophole is used by families in CA as a way to pass assets to their heirs. The worst part is the tax rate also gets passed down, but one generation tops.
As a result, my neighbor has a house with an effective tax rate of <0.1% ($3,000/yr on a single family house worth >$3M).
I'm less familiar with San Francisco, but I wouldn't be surprised if they had low property taxes due to Prop 13.
For instance, there's loads of large family houses being occupied by empty-nesters, while those trying to raise a young family are squashed into undersized townhouses.
Shifting the cost-base from "pay a huge mortgage and a tiny property tax" to "pay a moderate mortgage and an moderate property tax" means it's more likely to be worth the hassle of moving to a smaller house when you no longer need the space.
If the tax is high in a location where they think they can flip the house for a 50% gain in a few years that's still better profit than a lower tax in a place where they'll gain 5% in a few years. So the property tax doesn't, all by itself, matter to the speculator. It's just a cost of doing business.
A high property tax does, however, hurt the person who just wants a house to live in it and doesn't care about being a speculator.
How do you propose to do that in the US?
A tremendous amount of our problems, from high rent to gridlock, can be traced back to this decision.
Ok you've forced a bunch of house painters and restaurant owners to sell and move out. More tech workers buy the houses, more large chains buy the retail space, now what?
No, it didn't. California just kept adding taxes everywhere else to make up the difference and still had an annual deficit most of the 13 years I lived there.
> It saved seniors from losing their houses
Why are seniors magically allowed to be immune to basic market forces when no one else is?
Unlike first-time buyers, though, for whom asset inflation is itself strictly a tax (paid by them, to seniors, but far more so, banks and investors), price inflation of an asset you already hold is free money.
It's highly distortionary.
> Property taxes discourage construction, maintenance, and repair because taxes increase with improvements. LVT is not based on how land is used.
From https://www.strongtowns.org/journal/2019/3/8/if-the-land-tax...
> The problem is that the land tax component of a traditional property tax is too small to deter land speculation. Although property taxes vary from place to place, they are typically between 1% and 2% of the property's total value paid annually. If inflation is low, then for longtime property owners, this amounts to roughly the same cost as if they paid a one-time sales tax on the property of between 10% and 20%. Thus, the property tax applied to building values inflates their price by between 10% and 20%. And the property tax applied to land value allows 80% to 90% of publicly-created land value to accrue as a windfall to landowners. Thus, typical land taxes are too weak to discourage land speculation.
Etc. https://duckduckgo.com/?q=economist+land+use+vs+property+tax...
Land value tax discourages holding vacant or under-built property, at the expense of lowering the cost of the land. This means existing homeowners won’t be able to sell their old homes for as much as they could if fewer surrounding properties are developed (more modern, better built, larger, with more units), because their old home is closer to being worth the raw value of the land.
If you want to sell a $50,000 home for $500,000 because it sits on land that grew from being worth $10,000 to $450,000, then a LVT is terrible for you: you need to put in actual work improving your property rather than just sitting on a decrepit old building and selling it for a profit. The problem in the US is that the voters who mostly own their home can’t stomach their home value decreasing: that reduces their paper wealth as well as their ability to take out loans and second mortgages for things like college or car payments. So politically it’s a hard solution to push for (even if, on net, it would help the community be stronger).
Check out all the different tax rates that Wellington, New Zealand applies to a property [1]. I count 50!
[1] https://wellington.govt.nz/property-rates-and-building/rates...
First we came into battle with the school district. They would not allow us to build apartments on the mall site because "renters don't contribute to property taxes for the school", even though the citizens of this town need rentals because not everyone can afford a home. It then came to light that the city had been paying the school district out of their operating budget... which is illegal, schools can only be funded by property taxes. But would any politician want to go to war with the school district because they had accidentally been paying them illegally with taxpayer dollars? No way, they'd be voted out for attacking schools. So the school district continues draining the operating budget from the city to this day, while also getting their share of property taxes.
Enter the county assessor. We went back through all the assessment records and discovered that the county assessor had not re-assessed the commercial properties in the area for 8 years... meanwhile jacking taxes up on single family homes annually. Essentially they were giving businesses a freeze on property taxes while shifting the burden onto homeowners. If the county wasn't reassessing commercial real estate, than our TIF development couldn't demonstrate growth as the taxes would not change! So we tried to shake the hornets nest and let the county and city know that their taxpayers were being taken advantage of...
What was the end result? Why had they not been reassessing commercial properties? Incompetence, the assessor was some idiot who was voted in because he had the "D" next to his name and did not know anything about assessing property taxes and argued that he was simply "too understaffed" to assess commercial properties for the last 10 years.
Now imagine a whole country where massive, expensive errors like this can play out without anyone noticing for nearly a decade... it's frightening how broken, corrupt, or incompetent our government is in the United States.
If anything, this sounds like a system working, and you doing a bit of whining. Yeah, there's political game playing, that's called the price of localism and democracy.
It's the exact opposite of the system working. It's people being given power because of their party rather than their qualification and it indicates a greater sickness in politics in which we have become binary sports fans rooting for our team no matter the cost or quality of the candidate.
To be fair I have no clue how broken property taxes are in Europe or Japan or other first world places, but this ordeal was eye opening to me having grown up assuming our local governments were held to a higher standard.
(Property taxes are a real problem where I live; we're an upper-middle-class enclave directly adjacent to the roughest part of Chicago, and affordability issues prevent people in Chicago from moving across the border to get our services. In the world we actually live in, annexing the Village I live in would make more public policy sense than raising property taxes, which gives you a sense of how clumsy those taxes are as an intervention.)
Take Texas as an example. Up until this last year at least, Texas had relatively low property values but high property taxes. But high property taxes on a $200,000 house aren't the end of the world.
But here's a big one: in Texas, seniors (65+) can defer their property taxes to be settled upon their death. This allows seniors to stay in their house if they really want but incentivizes seniors to downsize to avoid passing on that liability onto their children.
This is exactly what you want.
Compare that to California, for example. "But what about the Seniors?" led to Prop 13, which was a massive tax giveaway to Disney and affluent property holders. Capping property taxes deprives the state of taxes to fund services for no good reason.
Even worse, when your children inherit that house, they inherit the house on a stepped up basis (meaning they pay no capital gains tax and the capital tax base gets reset to the market value so if you sell immediately you won't pay any CG tax) and children and grandchildren can inherit the artifically low property tax rates.
New York has a different set of problems. A big one is that single family homes are subsidized. A $1m SFH will pay less than half the property tax of an equal value condo. And there's all sorts of caps on property taxes on SFHs too.
Additionally a $100m condo only pays about 10-15x the property tax of a $1m condo in NYC.
I'm a big fan of making property speculation less lucrative. High property taxes are a good thing. We need to stop giving away money under the auspices of "but what about the Seniors?"
Grandchild -> child is readjusted to market rate property taxes. Only parent -> child IFF both are and continue to be primary homes, does it receive the previous tax treatment.
Oh yeah, and the higher tax gets passed to the renter/leasee in higher rents and is a further disincentive to usage and investment.
However, don’t understand how you are linking constitutional protection of property ownership with tax rates… it is obviously not an absolute because we do pay property taxes… so this is a matter of degrees.
Free society chooses to find the right level. It does not imply negation of bill of rights…