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Detroit wants to be the first big American city to tax land value

economist.com

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Re: Detroit wants to be the first big American city to tax land value

#51

Post by koolba »

BirdieNZ wrote: post #41
slashdev wrote: post #13

Earlier quoted context omitted.

I’ve heard economists champion the idea, but I’ve heard little talk about what the tradeoffs are. What are the downsides?

Gentrification, which displaces renters (rents become too expensive for existing tenants so they need to leave the area), will start displacing some land owners as well. LVT would increase due to land value increasing, and the current land owners may not be able to afford the increased tax. If you don't allow deferment of the tax, pensioners might have to move unwillingly (low income that may not cover the tax). Most…

> Most proposals allow deferment for retirees until sale of the property, though, so it's kinda a non-issue.

Ah more carve outs for boomers. I knew it had to be in there somewhere.

Re: Detroit wants to be the first big American city to tax land value

#52

Post by ses1984 »

TulliusCicero wrote: post #46
ejstronge wrote: post #39

Perhaps someone who has thought about this more can explain how a 'land value tax' differs from existing property tax regimes that explicitly examine the value of improvements and the value of land... This Detroit case is interesting because there are different rates of taxation on the land, but the difference in rate could also be obtained by increasing the land component of a parcel's value.

Land value taxes don't factor in improvements. Improving the land results in no property tax change, so they incentivize doing more useful things with the land.

Don’t improvements in nearby plots change the value of a plot of land?

Re: Detroit wants to be the first big American city to tax land value

#53

Post by josnyder »

slashdev wrote: post #13
mjamesaustin wrote: post #9

I'm a big proponent of Land Value Tax. In theory it is one of the healthiest forms of taxation since supply is fixed. It encourages efficient use of land and discourages owners from squatting on undeveloped land just to reap value from its location. https://en.wikipedia.org/wiki/Land_value_tax

I’ve heard economists champion the idea, but I’ve heard little talk about what the tradeoffs are. What are the downsides?

(I'm a big proponent of LVT)

The two downsides I'm aware of are difficulty in transitioning to an LVT and difficulty in valuing the land.

Transitioning to an LVT means that landowners no longer capture land rents for themselves, which is a massive overnight loss in the value they hold. The solutions there typically tax only the difference in land value versus a baseline assessment. So if a lot is worth $100 before LVT and $105 after, the tax is calculated only on the $5 difference.

Valuing the land is tricky because the whole point of LVT is to tax only the location itself. So the value of any structures should be excluded from taxation, and even improvements in soil quality (e.g. on a farm) should be excluded. This is problematic because the market for bare land is significant less liquid than improved land, especially in suburbs and cities. So there isn't always good data on comparable land, and there isn't a way to hold a straightforward auction to value a given lot. Of course, most present systems of property taxation are subject to the exact same issue.

Re: Detroit wants to be the first big American city to tax land value

#54

Post by r00fus »

MattGaiser wrote: post #26
slashdev wrote: post #13

Earlier quoted context omitted.

I’ve heard economists champion the idea, but I’ve heard little talk about what the tradeoffs are. What are the downsides?

High levels of displacement and instability. The proponents of this I have met are generally wanting to use it force seniors with paid off homes out of them so they can live in them instead (or often build on them, as they are property developers). It also assumes that NIMBYism remains at the same level, which is challenging, as every new build or development nearby increases your own taxes. It would also encourage t…

Do you have examples of LVT causing displacement & instability that's greater than what you get with astronomical housing costs in our normal property tax regime?

Re: Detroit wants to be the first big American city to tax land value

#55

Post by genman »

t-writescode wrote: post #44
ekianjo wrote: post #30

Earlier quoted context omitted.

So if your neighborhood gets popular you get kicked out? Sounds like a healthy policy. Have you ever thought more than 2 minutes about it?

Sounds like a way to convert single family homes into multiplexes as population rises so everyone can be closer to amenities. I’m very for that, especially if the former owner could find a guaranteed way to get one of the units on their land so they can stay.

if

Re: Detroit wants to be the first big American city to tax land value

#56

Post by [deleted] »

slashdev wrote: post #13
mjamesaustin wrote: post #9

I'm a big proponent of Land Value Tax. In theory it is one of the healthiest forms of taxation since supply is fixed. It encourages efficient use of land and discourages owners from squatting on undeveloped land just to reap value from its location. https://en.wikipedia.org/wiki/Land_value_tax

I’ve heard economists champion the idea, but I’ve heard little talk about what the tradeoffs are. What are the downsides?

[deleted]

Re: Detroit wants to be the first big American city to tax land value

#57

Post by TulliusCicero »

alexfromapex wrote: post #21

Since people can barely afford land and homes as it is, I’d love to hear how this will help make land more affordable or available.

Switching from a property tax to a land tax could easily result in no change in total tax revenue.

And since land taxes incentivize more efficient use of land, yes, you may get more total housing supply.

Re: Detroit wants to be the first big American city to tax land value

#58

Post by aldonius »

slashdev wrote: post #13
mjamesaustin wrote: post #9

I'm a big proponent of Land Value Tax. In theory it is one of the healthiest forms of taxation since supply is fixed. It encourages efficient use of land and discourages owners from squatting on undeveloped land just to reap value from its location. https://en.wikipedia.org/wiki/Land_value_tax

I’ve heard economists champion the idea, but I’ve heard little talk about what the tradeoffs are. What are the downsides?

Sometimes people want to sit on underdeveloped-for-the-location land not because it's a low-effort way to ride capital gains but for non-economic reasons.

Examples include conservation projects and urban farms, but the big one is empty-nesters ageing in place (while the city has grown around them).

If you've seen the start of the movie Up you'll recall that Mr. Carl Fredrickson owns a detached home which now has apartment towers going up on all sides. As a widower his house holds extreme sentimental value to him; he isn't selling. Under an optimal land tax regime, he'd be paying quite a bit of land tax reflecting the increased desirability of his location, and would potentially be forced to sell up as a result.

Re: Detroit wants to be the first big American city to tax land value

#59

Post by [deleted] »

IntelMiner wrote: post #14
thinkerswell wrote: post #6

I thought Detroit has been in decline for decades. If anything, you’d think they’d want to attract people back with _less_ taxes.

Kansas showed how poorly that economic theorem pans out https://en.m.wikipedia.org/wiki/Kansas_experiment

[deleted]

Re: Detroit wants to be the first big American city to tax land value

#60

Post by caminante »

groby_b wrote: post #40
ntonozzi wrote: post #24

Earlier quoted context omitted.

> Residents interested in adding vacant lots or side lots to their properties objected that those additions would have increased their tax bills as if there were a house on the added land, even if it was just an empty lot. From https://www.washingtonexaminer.com/the-short-life-of-pennsyl... .

That's an upside, not a downside.

Yes, LOL.

It's a "local" downside, but if you subscribe to the land tax idea, it's part of the process. These same people could just build "up" on their property, instead. But they want to cut grass.

FTA:

> The bigger immediate benefit, though, comes from reducing taxes on most [Detroit] residents. The city argues that 97% of homeowners will get a tax cut. Lower tax rates on improvements ought to encourage people to invest in properties

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