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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

#881

Post by jjav »

shawabawa3 wrote: post #602
jjav wrote: post #548

Earlier quoted context omitted.

> If anything it seems like it would be much easier than the current property tax assessment scheme. Explain how it can be easier? If valuation is based on sale price of the property or nearby comparable properties, those are objective numbers. A sale actually happened, at that price. So it was worth that much to someone. No room for argument. A LVT gives power to the government to unilaterally declare that in some a…

Are empty plots not bought and sold? Are properties not bought and sold for demolition and redevelopment? Can you not compare the sale price of similar properties with similar plots in different locations to get estimates for the land value? What about using insurance estimates for rebuilding costs? If my house is insured for a rebuilding cost of $500,000 and I bought it for $1,500,000, isn't $1,000,000 a reasonable…

> You could say exactly the same thing about property taxes currently. Why could the government not unilaterally declare your property is worth 10x? Because that's not how it works

Right, that's not how it works when the tax is based on the sale prices of the property itself and/or comparable nearby properties. Those are market clearing prices, so it demonstrates actual people were actually willing to pay that price, so it is realistic.

The county can't say your property is worth 10x overnight, because there is proof that it is not, in the form of the public records of comparable sales nearby in the last few months.

But with LVT the claim is that the tax should be based on a theoretical value of what it might be worth if someone build something else there, like a high rise apartment tower. It is speculative, since the building doesn't exist. That's completely unfair.

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

#882

Post by jjav »

reaperman wrote: post #552
jjav wrote: post #537

Earlier quoted context omitted.

> Simple taxes that are difficult to avoid (such as LVT) Can you explain how is it simple? Who gets to set the theoretical value of a plot of land, disconnected from all current uses? Since it's theoretical, it's very subjective. Who do we give this power to make or destroy the owners based on purely subjective speculation on what it might be worth? How do we guarantee that this entity won't abuse the power to set ar…

> How do we guarantee that this entity won't abuse the power to set arbitrary tax valuations? We don't. They already do that with "normal" property taxes. This wouldn't change that. Soon-to-be gentrified neighborhoods are often ignored by property tax assessors and code enforcement for many years, then one day a developer reaches out to the tax assessors and says "hey the taxable assessment values in this neighborhoo…

> I don't think this system would be worse in that sense, probably roughly equivalent. But it makes sense to at least attempt to tax undeveloped and under-developed land at high enough rates to encourage at least some healthy amount of development. It won't be perfect, but it shouldn't be worse either.

I don't see how it can't not be much worse.

If the tax is based on the actual value of the property, there are two important factors:

1- You can easily prove or disprove whether the valuation makes sense. Just look at comparable sales nearby. If in a neighborhood of similar houses, ten have been sold in the past year for 200K and your very similar house receives a tax bill saying it's worth 2M, you can easily protest and win since the sales records show it's only worth +/- 200K.

2- If it really is worth 2M based on comparable sales, in worst case you can then sell it for 2M. While it's terrible to kick people out of their homes via property taxes, at least the consolation is that it's actually worth that. So you don't go bankrupt, you can sell it for that price.

With LVT the tax is supposed to be based on some theoretical projection of what it might be worth if a non-existing structure were to be there. What prevents the county from telling you that if only you built a ten story highrise there, it would be worth 10M? So now you have to pay tax on 10M.

You can't easily disprove it because, well perhaps maybe it's true that if the highrise was there it might be worth 10M. But of course the building doesn't exist so it's all speculation. Also, since the building doesn't actually exist, you can't sell the property for 10M to pay the tax bill.

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

#883

Post by lliamander »

krupan wrote: post #687
lliamander wrote: post #505

Earlier quoted context omitted.

While I share your reservations, I do prefer this to imminent domain (a practice I am not a fan of). I think it's more likely for the seller to get the best value for their property, and incentivizes the seller to make good use of the property.

Are those the only two options?

I'm not saying they are. I am just saying that imminent domain is what we have now, and that land-value tax is something that might be better.

I'd rather the government not force people out of homes they paid for, but I don't think that's an option right now.

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

#884

Post by sagarm »

bart_spoon wrote: post #862
sagarm wrote: post #855

Earlier quoted context omitted.

> screwed even harder if their neighborhood gets gentrified. Meaning, their land value and therefore wealth has gone up. Many people would love to be "screwed" like this, and in fact very hard at getting into the position amenable to "screwing."

Their wealth goes up but they can only access that wealth by selling. And in the meantime, if they don’t sell, simply living on the property becomes increasingly expensive. So yes, they won’t be walking away with nothing, but no, I can’t imagine the too many people enthused about the idea that a home that was affordable when they bought it is no longer affordable because the neighborhood is nicer.

If the property has gone up in value, the area has clearly changed. Either they don't like the changes and can cash out their unearned windfall, or they do like the changes and can spend it.

As a class, real property owners are wealthier and have means relative to people who don't own real property. The idea that they're some oppressed underclass is ridiculous.

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

#885

Post by mactrey »

kevincox wrote: post #880
mactrey wrote: post #825

Earlier quoted context omitted.

But this problem already exists. Many people live in homes for 30+ years and pay property tax on the land + improvement (physical home) value. Why would it be so much harder to hypothetically value the land without a recent sale (required for a LVT) than to hypothetically value the land + improvements without a recent sale (required for property taxes which currently exist in almost every city in America)?

Because their neighbours have sold their houses recently. So using similar sales as a baseline and then factoring in a few differences between those properties and the one that is being assessed is much easier than doing that and then subtracting the built-up value. Basically all of your data points are the built-up prices. So it is going to be easier to estimate the built-up value than the raw property value. Maybe…

Then yes, I’ll agree with that. Both can be difficult but valuing just the underlying land is harder.

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

#886

Post by msla »

nostrademons wrote: post #871
msla wrote: post #859

Earlier quoted context omitted.

> The land will still be owned, just by different people, regardless of how high it is taxed. That means that the government can raise revenue without curtailing economic activity. And this is a fantasy. Some land is marginal: Taxing it more would reduce the profit anyone could make from it to nothing, leading to empty lots that aren't owned by anyone because the last owners were delinquent on taxes to the point the…

That's why the tax is in proportion to the unimproved value of the land. Marginal land has almost zero value; therefore it will have almost zero tax. The landowner gets to keep rent due from any improvements (like structures) on the land.

> That's why the tax is in proportion to the unimproved value of the land.

https://news.ycombinator.com/item?id=37913341

> The idea is that you tax the land only as if it was being used for best use - so that every property is encouraged to develop to maximum density.

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

#887

Post by ejstronge »

sagarm wrote: post #856
bombcar wrote: post #832

Earlier quoted context omitted.

Most people don't care about zoning, but they really do care about zoning changes that affect them. Being told you can't live in your house anymore because it is now zoned commercial gets people riled up, and being told the same because it's now too expensive does the same. It's a hot-button issue but you can defuse it by putting safeguards in, though they're not always successful - see eminent domain scandals.

Actually this entire construction is wrong: currently people who improve their land get penalized by higher taxes. If there are only land value and not property taxes, we are in fact increasing your freedom to make changes to your land without penalty.

Your argument ignores that changes to neighbors' property would then cause an increased burden to a land owner. This would not seem to be an improvement for freedom

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

#888

Post by reaperman »

jjav wrote: post #882
reaperman wrote: post #552

Earlier quoted context omitted.

> How do we guarantee that this entity won't abuse the power to set arbitrary tax valuations? We don't. They already do that with "normal" property taxes. This wouldn't change that. Soon-to-be gentrified neighborhoods are often ignored by property tax assessors and code enforcement for many years, then one day a developer reaches out to the tax assessors and says "hey the taxable assessment values in this neighborhoo…

> I don't think this system would be worse in that sense, probably roughly equivalent. But it makes sense to at least attempt to tax undeveloped and under-developed land at high enough rates to encourage at least some healthy amount of development. It won't be perfect, but it shouldn't be worse either. I don't see how it can't not be much worse. If the tax is based on the actual value of the property, there are two i…

> You can easily prove or disprove whether the valuation makes sense. Just look at comparable sales nearby.

In the Houston area the appraisal board just doesn’t care. They raise taxes across the board for the whole neighborhood by the same amount every year and appealing has limited effect. You cant really argue comparables because the whole neighborhood raises in lockstep by a shocking amount every year (since well before the big housing bubble)

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

#889

Post by harimau777 »

AmericanChopper wrote: post #260
harimau777 wrote: post #235

Earlier quoted context omitted.

When I say rent seeking, I mean something like "gaining profit by owning capital rather than by performing labor". Under that definition, all value extracted from capital would be rent seeking[1]. Strictly speaking, I'm not necessarily opposed to extracting value by owning capital; in many cases someone bought that capital with the profits from their labor, and more broadly the world isn't black and white. However, I…

That’s a perfectly fine view for a person to have, but is definitely not what the economic concept of rent seeking is. What you’re talking about is essentially what Marx called “seizing the means of production”, and is the fundamental basis of Marxist economics. So if you wanted to be more clear with what you’re trying to say, I’d suggest you adjust your vocabulary a bit.

Thanks for the insight, that's a good point.

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

#890

Post by LordDragonfang »

msla wrote: post #886
nostrademons wrote: post #871

Earlier quoted context omitted.

That's why the tax is in proportion to the unimproved value of the land. Marginal land has almost zero value; therefore it will have almost zero tax. The landowner gets to keep rent due from any improvements (like structures) on the land.

> That's why the tax is in proportion to the unimproved value of the land. https://news.ycombinator.com/item?id=37913341 > The idea is that you tax the land only as if it was being used for best use - so that every property is encouraged to develop to maximum density.

>Marginal land is land that has little or no agricultural or industrial value.

So by definition, the "best use" isn't very valuable. I suppose the definition doesn't strictly include residential usage, but it's not hard to see that some land is inherently less valuable for residential as well, because location matters.

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