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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

#381

Post by olalonde »

unyttigfjelltol wrote: post #150
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.

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…

Is the tax just a function of area or does it account for location as well?

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

#382

Post by eru »

bitshiftfaced wrote: post #309
eru wrote: post #300

Earlier quoted context omitted.

> What's more, even if you pay more than you ought to, you'll never feel secure in your home, knowing that at any time you may be forced to sell. That can already happen right now with conventional property taxes..

Also with land value tax without the proposed land valuation method. The difference is how in one case you're never secure in your home even if you can afford your theoretically fairly assigned tax bill. There is always someone out there rich enough to uproot a family from their home, even if you're otherwise financially secure.

Your weird scenario can happen with most other assessment scenarios either.

If Warren Buffett wants to increase the value of my land, he can bid up all the surrounding plots, and make bids for my land. Any sane assessment method will see that the value of my land has increased, and will increase my property tax or LVT, and I'll have to pay or face the consequences.

(In the self-assessment case, you can give people the right to refuse to sell, if they are willing to eg back-pay the difference of LVT to the higher price for the last year or so. So people can opt to pay the tax instead of moving out.

To be extra fancy, give the would-be-buyer 1% of the extra tax take to incentivise people hunting for undervalued homes and to compensate for the buyer having had to secure funding.)

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

#383

Post by eru »

jandrewrogers wrote: post #354
eru wrote: post #267

Earlier quoted context omitted.

I appreciate the sentiment, but that's not really true. If you can afford the rent for your home, you can afford to own it via a mortgage. (Assuming functioning capital markets and assuming low enough transaction costs.) Something like this has to be true, because that's how landlords pay for their cost of capital and maintenance etc. If rent couldn't cover that, but for some reason home prices still stayed high, and…

> If you can afford the rent for your home, you can afford to own it via a mortgage. This does not follow. It assumes the landlord has the same cost basis and cashflow requirements as the person with the mortgage, which is almost never the case. Your mortgage interest payments alone can be higher than a rent that allows a landlord to make a profit. This is not uncommon. Rents in Seattle, for example, are far lower th…

Why does anyone in Seattle buy then?

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

#384

Post by somethoughts »

yumbaya wrote: post #329
somethoughts wrote: post #249

Earlier quoted context omitted.

I generally agree with LVT/Georgianism in principal. However in reality its a difficult ask to have all people purchasing single family homes to be able to build a 40 year financial model/projection of a regions growth prospects when the buy a home. Or have them move away from their family and friends support network. I think Georgianism works best: - when there's expansive flat land and slow growth and no zoning/res…

LVT would remove the disincentive to develop housing, so cost of living would drop as more is built. Even if a homeowner couldn’t keep up with the land tax, they’d be much more likely to be able to find housing in the same area. Compare to right now, where every generation can’t afford to live in their own hometown, because there’s only upwards pressure on housing costs, so families and support networks are constantl…

Yes - I think pure Georgism works if you don't have zoning restrictions and abundant flat land and slow linear growth.

OR you have proper planning and build it into the city charter. The city needs to have planned for the locations of future additional schools/recreational infrastructure/transporation a priori and have sufficient resources (water, gas, electricity, sewage).

There also need to be proper addendums to any purchase agreements to highlight the potential for severe property tax increases.

Post facto switchovers to or continuation of pure LVT don't seem like they would work realistically.

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

#385

Post by eru »

SoftTalker wrote: post #367
eru wrote: post #267

Earlier quoted context omitted.

I appreciate the sentiment, but that's not really true. If you can afford the rent for your home, you can afford to own it via a mortgage. (Assuming functioning capital markets and assuming low enough transaction costs.) Something like this has to be true, because that's how landlords pay for their cost of capital and maintenance etc. If rent couldn't cover that, but for some reason home prices still stayed high, and…

And in fact your mortgage would almost certainly be less than the rent for the same property, since the landlord will be using commercial financing which costs more, and will be paying taxes as a non-resident owner, which are higher. The landlord will also need to buy commercial property and liability insurance, which costs more. Your residential mortgage will be at a lower rate and you will have property tax exempti…

Yes.

Well, in the hypothetical system we are discussing there would presumably be no tax exemption for primary residences or other tax differences.

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

#386

Post by eru »

logicchains wrote: post #282
eru wrote: post #226

Earlier quoted context omitted.

> If I earn $100 and pay tax on it, whatever’s left over is mine forever, and I never have to pay tax on that income again. You know that this is not true in most places? If you put a hundred dollar bill under your pillow, it will be worth less and less as time goes by thanks to inflation. And if you use that hundred dollar bill to buy an asset that hopefully keeps its real value, you pay capital gains taxes on the n…

>If you put a hundred dollar bill under your pillow, it will be worth less and less as time goes by thanks to inflation. And if you use that hundred dollar bill to buy an asset that hopefully keeps its real value, you pay capital gains taxes on the nominal increase in value (even if there was no real increase in value). That's because capital gains taxes that don't account for inflation (which is most of them) are es…

Yes, that's my point. It's already the case that most government indirectly tax wealth. So the proposal isn't some new outrage.

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

#387

Post by avar »

bitshiftfaced wrote: post #353
avar wrote: post #254

Earlier quoted context omitted.

You can pull on those heartstrings in either direction, as it were. In economic terms what you're arguing is that investment efficiency should always outweigh allocative efficiency. > pay [...] much more than your neighbor, who objectively speaking may have a lot of equal value. All land is unique, so I don't think adjacent land of equal value exists. The difference may be trivial, or it may be substantial. But yes,…

> All land is unique, so I don't think adjacent land of equal value exists. The difference may be trivial, or it may be substantial. I don't understand how this relates. My point would stand even if the neighboring lots were slightly different in value. > just pointing out that fair price discovery for a self-assessment LVT isn't an unsolved problem. Yeah okay I'll give you that. It's just that we can't ignore how ta…

> I don't understand how this relates.

I'm agreeing with you (along with the "heartstrings" comment) that all land is going to have both objective and intangible value, e.g. the view, and that someone grew up in that house.

But I think you're imagining that any intangible interests in the land are going to favor the incumbent.

I think for residential lots that's probably more true than not on average.

But we can easily come up with examples where a prospective buyer has a stronger intangible interest.

E.g. maybe you own it, and don't really care about the land or house per-se, but it saves you 1 minute on your commute v.s. the next lot.

Whereas I used to live there, and was forced to sell the house during the last recession. I've got a deep emotional connection to the lot and house, and my dog's buried in the backyard.

I'd like to buy the house back. You don't want to sell.

Does my interest outweigh yours? Maybe, maybe not.

All I'm saying is that a self-assessed LVT with an auction mechanism (see https://news.ycombinator.com/item?id=37909570) will enable both of us to set a price on those intangibles.

I agree that probably nobody's willing to try this out any time soon, for what it's worth the authors of "Radical Markets" suggest phasing in such a system by starting with commercial lots (and perhaps it would never go beyond that).

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

#388

Post by tired-turtle »

LapsangGuzzler wrote: post #361
dheera wrote: post #217

Earlier quoted context omitted.

Yep, if I own something I'd better own it. I shouldn't have to pay rent for owning land, or pay rent for owning a house. I'll just keep renting, I guess, since it makes no difference.

> I'll just keep renting, I guess, since it makes no difference. There’s no way that the tax burden offsets the equity you would build by owning property vs renting. 95% of my mortgage payment goes toward paying down principal on the loan, which is essentially value I get to keep. Not to mention that my housing costs are much more fixed compared to rent. Paying rent provides zero value retention in the long run, its…

This stance is predicated on interest rates. Taking out a mortgage is currently not the clear cut “right choice.” It might be the optimal choice, but consider, for a loan issued today at over 6%, twice as much money over the lifetime of the loan will be go towards interest as will go toward principle.

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

#390

Post by LapsangGuzzler »

tired-turtle wrote: post #388
LapsangGuzzler wrote: post #361

Earlier quoted context omitted.

> I'll just keep renting, I guess, since it makes no difference. There’s no way that the tax burden offsets the equity you would build by owning property vs renting. 95% of my mortgage payment goes toward paying down principal on the loan, which is essentially value I get to keep. Not to mention that my housing costs are much more fixed compared to rent. Paying rent provides zero value retention in the long run, its…

This stance is predicated on interest rates. Taking out a mortgage is currently not the clear cut “right choice.” It might be the optimal choice, but consider, for a loan issued today at over 6%, twice as much money over the lifetime of the loan will be go towards interest as will go toward principle.

True, but you always have opportunity to refinance once rates come back down.
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