From the stand of basic economics, land value taxation makes sense to me: A bond with a higher interest rate is worth more than one with a lower one, ceteris paribus. Hence, a bond with a negative interest rate (one that costs your money to hold) must be worth less than one with a positive ones. And in the case of two bonds with negative interest rates, the one with the less negative rates is clearly more valuable. And hence costs more.
The same analogy applies to land: All else equal, prefer the parcel of land with lower property taxes (the lower negative interest rate). The higher the tax rate, the less the land is worth. If you want to keep land values low (and affordable to more people), raise the property tax.
LVT keeps housing affordable
The same analogy applies to land: All else equal, prefer the parcel of land with lower property taxes (the lower negative interest rate). The higher the tax rate, the less the land is worth. If you want to keep land values low (and affordable to more people), raise the property tax.
LVT keeps housing affordable
LVT has such a powerful dampening effect on idle land speculation that even the land portion of the real estate tax keeps housing affordable. Cities with the highest real estate taxes have the most affordable housing. Texas and California were the two fastest growing states in the second half of the 20th century. Texas, which relies heavily on property tax, having no personal income taxes, has four of the six most affordable cities in the nation. California, which dramatically curtailed its property taxes, has 23 of the 25 least affordable cities.
It is only logical that a tax on buildings would discourage construction and reduce the supply of buildings, increasing real estate prices and rents. However, LVT is such a potent disincentive to idle landholding that it has a much stronger opposite effect.
Rents are primarily set by location value, only secondarily by actual quality of housing stock. Affordable locations are affordable due to low site value, which doesn't change under Land Value Taxation. But as vacant urban land was forced into use by Land Value Taxation, landlords would have to compete on quality of housing instead of just location, so they would have incentive to improve housing stock just to charge the same rents. This would mean higher quality affordable housing. Luckily, under Land Value Taxation, landlords would no longer face higher property taxes for improving their buildings.
-Erïch Jacoby-Hawkins
The selling price of land, in total, is the capitalised net transfer of incomes between groups in society. From those that own little/no land by value, relative to taxes paid, to those whom the opposite is true.
ReplyDeleteThus the reduction in land's selling price is the measure by which we should judge the efficacy of policy in dealing with inequality/affordabilty issues.
To be clear, the reason a 100% tax on land's rental value drops its selling price to zero is precisely because it transfers incomes back to those that find housing unaffordable now. Therefore solving that issue instantly and permanently.
Furthermore, such a tax would increase overall expenditure on housing, allowing the market to rationalise existing stock, reducing costs.
Housing affordabilty is not an issue of supply. Whereas economic growth and welfare are.