Detroit wants to be the first big American city to tax land value • Hacker News Board

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

#161

Post by J_Shelby_J » Tue, Oct 17, 2023, 1:03 AM UTC

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…

> as every new build or development nearby increases your own taxes.

The opposite should be true because as density goes up the cost of services go down.

What's the alternative? Letting SFH leach off the current system paying less in taxes than the government spends to service them?

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

#162

Post by jlhawn » Tue, Oct 17, 2023, 1:05 AM UTC

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.

More available because increasing the holding cost of underutilized land means owners would be marginally pressured to sell.

More affordable because the tax increases the holding cost of land which is factored into a buyer's purchase budget, much like how mortgage interest rates factor into a buyer's budget.

First let's assume the supply of land for sale is fixed. Of course land is in fixed quantity but I'm talking only about sales inventory – what is actively on the market to purchase. Say I can afford $4,000 per month. If property tax is $1,000 per month and interest rate is 6% maybe I say my purchase budget is $500,000. If interest rate decreases to 3% maybe I say my purchase budget is $700,000. Now consider if the property tax increased to $2,000 per month. Now if interest is 6% my purchase budget becomes $330,000 and if 3% then $475,000. In either case I still pay $4000 total per month. The economic incidence of the tax falls completely on the seller (the previous owner).

Now let's remove our prior assumption about the quantity of land for sale. we earlier established that land would be more available under a higher land value tax because of the increased holding cost incentivizing more sales. That increase in supply (of land for sale) should reduce the market price for land. I can either get the same land for less purchase price or more/higher quality land for the same.

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

#163

Post by avar » Tue, Oct 17, 2023, 1:05 AM UTC

josnyder wrote: post #53

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?

(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 LV…

> difficulty in valuing the land.

It's rather easy to value the land: Have the owner decide what it's worth, then they pay a tax as a percentage of that valuation.

Now, obviously given that system everyone's going to value their land at $0.

To adjust for that land owners must be obligated to sell their land to anyone willing to buy it at the declared valuation.

Such a mechanism doesn't only keep the current owners honest, but leads to more accurate price discovery, as the land might have a higher "real" valuation than the current owner is aware of.

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

#164

Post by Loughla » Tue, Oct 17, 2023, 1:06 AM UTC

marcell wrote: post #159

unyttigfjelltol wrote: post #150

Earlier quoted context omitted.

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, s…

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…

You have to pay personal property tax on pretty much anything with a motor in Missouri. It's how they sell the population on low land property taxes.

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

#165

Post by jandrewrogers » Tue, Oct 17, 2023, 1:06 AM UTC

phkahler wrote: post #87

yongjik wrote: post #65

Earlier quoted context omitted.

The main reason the California system is a disaster is that long-time owners are grandfathered and pay very little tax, meaning there's no incentive for these people to support more housing. In other words, if California actually did kick out homeowners for their neighborhood getting too popular, it would have been much less of a disaster.

Kicking out long term residents sounds kinda sick doesn't it? Think about it. You're just gonna have homeless old people.

Why would old people be homeless? The cause of them being forced out is that they own an immensely valuable asset but live on relatively little income. That asset would then presumably be sold for cash. Any house expensive enough to create this situation would also give them enough hard cash to live out the rest of their lives in relative comfort.

This is essentially a relatively benign form of eminent domain, which has the same consequences without the implication of a good financial outcome.

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

#166

Post by p1mrx » Tue, Oct 17, 2023, 1:06 AM UTC

r00fus wrote: post #77

woliveirajr wrote: post #37

Pufff, Brazil does that since forever. By paying some tax over your land, basically your government is taking it from you every generation or two. Roughly, 2% each year and in 50 years and it's gone.

"We sit together The mountain and me Until only the mountain remains" -Li Po Maybe the land isn't really yours to begin with?

When Li Po died, why didn't they recharge him?

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

#167

Post by BoiledCabbage » Tue, Oct 17, 2023, 1:07 AM UTC

xboxnolifes wrote: post #123

phkahler wrote: post #120

Earlier quoted context omitted.

It's not the governments job to care about that.

It very much is the government's job to deal with tragedy of the commons situations. It's arguably it's only job, outside of contract enforcement and national defense.

> It's arguably it's only job, outside of contract enforcement and national defense.

Which funnily enough are both just other forms of tragedy of the commons.

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

#168

Post by harimau777 » Tue, Oct 17, 2023, 1:07 AM UTC

saxonww wrote: post #152

harimau777 wrote: post #128

Earlier quoted context omitted.

The difference is that someone created the products that I own and I payed them for it. However, no one (at least no one human depending on your religious beliefs) created the land.

Someone created the improvements on it, though. Which is most of what you're paying for when you buy or rent a place to live. This isn't going to change much about landlords. If anything, it will increase the amount of housing rented through landlords, because the land value tax will make it uneconomical for more people to own their own homes. In a high value area, the only people who would be able to do so are the v…

A land value tax seeks to only tax the value of the land itself, not the improvements. Of course that's not always easy to assess, but neither are property values for normal property taxes.

Even setting that aside, if the land value taxes on the land that someone owns dramatically increase then that means the value of their property has dramatically increased, and they can sell the land for a dramatic profit. Certainly it sucks that someone might have to sell; however, don't think that someone who becomes rich due to their home value appreciating is really much of a victim in the grand scheme of things.

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

#169

Post by somewhereoutth » Tue, Oct 17, 2023, 1:07 AM UTC

EA-3167 wrote: post #86

r00fus wrote: post #77

Earlier quoted context omitted.

"We sit together The mountain and me Until only the mountain remains" -Li Po Maybe the land isn't really yours to begin with?

That's a lot more romantic until you remember it's just going to the government, not some mystical starscape.

Where I live the government is by, of, and for the people.

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

#170

Post by ethanbond » Tue, Oct 17, 2023, 1:08 AM UTC

somethoughts wrote: post #160

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.

Agreed - the many counties in the US already have a portion of the property tax bill coming from a land value tax/Georgianism. California property tax bills have two components [1][2]: - structure/improvement assessed value - land value assessed value The land value component is re-accessed frequently and changes based on comparables (presumably but its mostly black box). The question is to what degree/portion of Geo…

Why would the land value spiral upwards? At some point the land becomes not worth buying/developing, so there’s still downward pressure on price.

Or are you suggesting the tax rate will spiral upward infinitely? Again, at some point that just means it’s not worth buying the land unless the productivity possible on it is through the roof as well.