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(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

(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.

hhmc 3y ago
> difficulty in valuing the land This seems by _far_ the biggest difficulty, and I find it strange that this rarely comes up in LVT discussions. Even for nominally 'liquid' land it's not clear who values it or how.
- BirdieNZ 3y ago
  Lots of countries value land and improvements separately (e.g. New Zealand, Australia, Denmark) for council rates (property tax essentially). Here in New Zealand, there are several companies that provide valuation services to local councils (and private individuals if you want to value your property). You can dispute the valuation if you think you're being unfairly valued (usually because you want to pay less property tax).
- xboxnolifes 3y ago
  It doesn't seem that different from what normally is done for property tax. Property tax is already generally based on land and structure (Just look at property taxes on the million dollar tiny houses on prime real estate). LVT is just removing the structure portion.
- doctorpangloss 3y ago
  Is it? I can tell you now, I have no difficulty asserting that the value is near zero for the depreciating, crumbling houses on top of most of the land in the Mission in San Francisco. All the appreciation, which means nearly all of the sales price, of a typical home here, is the land. BuT rEnNoVaTiOnS. Listen, I’m not trying to give you a comprehensive answer. I’m just trying to show that it’s not by far the biggest difficulty, not in the places LVT is most impactful, such as cities with extremely high vacancies like San Francisco.
  - Alupis 3y ago
    The problem you're glossing over is what value should be assigned to the land. If some land developer wants to build a new arena next to your plot of land - boom you're value just skyrocketed. If the same land developer backs out of the deal - boom your land is worth less (or is actually worthless). Your taxes depend on exactly when the assessment was made... and even professionals cannot agree on valuation (as we're seeing in some high profile cases right now). Even for the same plot of land two people can value it radically differently. > extremely high vacancies like San Francisco This is a relatively new phenomenon.
    - harimau777 3y ago
      Wouldn't that apply to existing property tax systems or any tax where the value it is based on is only assessed periodically?
      - Alupis 3y ago
        Yes, and it's been long bemoaned about how people game that system and how unfair it has a tendency of being. Which was one of the points I was raising. There is no objective valuation for anything really... particularly when it comes to more-or-less unique, speculative properties such as land and/or improvements. The only reason everyone mostly agrees on, say a car's value is there's a lot of cars exactly like it that have been sold recently in whatever area you are in. Yet, every plot of land is mostly unique and has a tremendous amount of potential, debatable factors when it comes to value.
- eru 3y ago
  > [...] and I find it strange that this rarely comes up in LVT discussions. That's almost the most common discussion point in my experience..
lbwtaylor 3y ago
- There are deeper problems with valuing land. Land values in cities are directly related to approved zoning (i.e. what you are allowed to build), so the city government can rezone neighborhoods and unilaterally alter the land values the residents pay tax on. This may not agree with everyone's view of fairness. - LVT encourages building tall and is hostile to lowrise development and unbuilt/green spaces. Those policy preferences may not be shared by everyone. >> Of course, most present systems of property taxation are subject to the exact same issue. This is not really true. There are constant sales of building+land in cities and estimating building+land values can reasonably be done. In a city bare land almost never trades.So you have to extract land values from building+land sales, which is much much harder and possibly impossible to do fairly.
- slashdev 3y ago
  That does seem difficult to do.
- eru 3y ago
  > - There are deeper problems with valuing land. Land values in cities are directly related to approved zoning (i.e. what you are allowed to build), so the city government can rezone neighborhoods and unilaterally alter the land values the residents pay tax on. This may not agree with everyone's view of fairness. That's actually a feature, especially if you make sure that the authority who can do the zoning also gets the revenue (or at least shares in it). That way aligns incentives. > - LVT encourages building tall and is hostile to lowrise development and unbuilt/green spaces. Those policy preferences may not be shared by everyone. LVT doesn't do anything like that. The whole point of LVT is that it has no influence on land use choices: you literally pay the same LVT no matter how you use the land. It doesn't encourage or discourage anything. That's why it is economically efficient. (However, alternative taxation schemes like income tax or capital gains tax or taxes on improvements do discourage building tall. And if you lower those taxes, people will build taller. Btw, I think that for all its faults a conventional property tax that doesn't distinguish between land and improvements is still miles better than income tax or capital gains tax or sales tax etc.) > In a city bare land almost never trades.So you have to extract land values from building+land sales, which is much much harder and possibly impossible to do fairly. Often land changes hands and the new owner tears down the structure and build a new one. You can reasonably assume that the old building was valued at zero, or even negative because tearing down costs money and time. So that gives a lower limit on the price of the bare land.
avar 3y ago
> 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.
- sideshowb 3y ago
  Given the friction (inconvenience) in having to move house/business etc, that hardly seems fair. It also defeats the object of land ownership if you can be kicked off it at any time.
  - avar 3y ago
    You can trivially structure such a tax in such a way that going through a "forced sale" is going to be very lucrative (edit: elaborated in a sibling comment: https://news.ycombinator.com/item?id=37909570 https://news.ycombinator.com/item?id=37909570). > It also defeats the object of land ownership[...] So no, most people could keep land they'd like to keep in practice. The entire notion of any sort of property tax is also predicated on the idea that individual land ownership is a tradeoff between the interest of the individual and society at large.
    - sideshowb 3y ago
      > The entire notion of any sort of property tax is also predicated on the idea that individual land ownership is a tradeoff between the interest of the individual and society at large. Indeed, and I like this concept, I don't think we should ever "own" land in the same way as I own, say, my phone. All we ever do is borrow it from society (or even nature). However, some aspects of land ownership are a net positive for society at large. In particular, the incentive to look after it better if it's really yours until you sell it or you die. With this in mind I like some proposals I've heard whereby unpaid land value tax can be accrued to be paid at death or on sale. That way the stewardship aspect of ownership is reinforced without the freeloading on land value increases. Returning to the valuation question. I think you're assuming an efficient market when it clearly isn't one. It would be like having to reapply for your own job, except it's rebidding for your own house. Not a kind thing to do to anyone.
AnimalMuppet 3y ago
To me, the biggest downside is that the government is running this. If the government turns on an LVT, do you trust them to turn off other forms of funding? Or do you think they're just going to decide that their income went up? I kind of trust them, but I don't have very high confidence that they won't decide that they "need" the extra money, maybe just for some "emergency" situation...
- eru 3y ago
  The nice thing is that lowering other taxes automatically increases the LVT tax take via higher property prices. You can see that dynamic on the border between Switzerland and Germany: Swiss income taxes are a lot lower, so their property prices are higher. (You can probably see similar things happening on some borders between American states?) Without an LVT, those higher property prices only benefit the land owner. With an LVT, the government gets some incentive to lower those taxes. > If the government turns on an LVT, do you trust them to turn off other forms of funding? Or do you think they're just going to decide that their income went up? I guess it depends. Governments have an incentive to get themselves more budget, but taxes also aren't just ratcheting up all the time. Eg the US still has lower income taxes than most of Europe. And tax rates also change over time.

hhmc 3y ago

> difficulty in valuing the land This seems by _far_ the biggest difficulty, and I find it strange that this rarely comes up in LVT discussions. Even for nominally 'liquid' land it's not clear who values it or how.

BirdieNZ 3y ago
Lots of countries value land and improvements separately (e.g. New Zealand, Australia, Denmark) for council rates (property tax essentially). Here in New Zealand, there are several companies that provide valuation services to local councils (and private individuals if you want to value your property). You can dispute the valuation if you think you're being unfairly valued (usually because you want to pay less property tax).
xboxnolifes 3y ago
It doesn't seem that different from what normally is done for property tax. Property tax is already generally based on land and structure (Just look at property taxes on the million dollar tiny houses on prime real estate). LVT is just removing the structure portion.
doctorpangloss 3y ago
Is it? I can tell you now, I have no difficulty asserting that the value is near zero for the depreciating, crumbling houses on top of most of the land in the Mission in San Francisco. All the appreciation, which means nearly all of the sales price, of a typical home here, is the land. BuT rEnNoVaTiOnS. Listen, I’m not trying to give you a comprehensive answer. I’m just trying to show that it’s not by far the biggest difficulty, not in the places LVT is most impactful, such as cities with extremely high vacancies like San Francisco.
- Alupis 3y ago
  The problem you're glossing over is what value should be assigned to the land. If some land developer wants to build a new arena next to your plot of land - boom you're value just skyrocketed. If the same land developer backs out of the deal - boom your land is worth less (or is actually worthless). Your taxes depend on exactly when the assessment was made... and even professionals cannot agree on valuation (as we're seeing in some high profile cases right now). Even for the same plot of land two people can value it radically differently. > extremely high vacancies like San Francisco This is a relatively new phenomenon.
  - harimau777 3y ago
    Wouldn't that apply to existing property tax systems or any tax where the value it is based on is only assessed periodically?
    - Alupis 3y ago
      Yes, and it's been long bemoaned about how people game that system and how unfair it has a tendency of being. Which was one of the points I was raising. There is no objective valuation for anything really... particularly when it comes to more-or-less unique, speculative properties such as land and/or improvements. The only reason everyone mostly agrees on, say a car's value is there's a lot of cars exactly like it that have been sold recently in whatever area you are in. Yet, every plot of land is mostly unique and has a tremendous amount of potential, debatable factors when it comes to value.
eru 3y ago
> [...] and I find it strange that this rarely comes up in LVT discussions. That's almost the most common discussion point in my experience..

lbwtaylor 3y ago

- There are deeper problems with valuing land. Land values in cities are directly related to approved zoning (i.e. what you are allowed to build), so the city government can rezone neighborhoods and unilaterally alter the land values the residents pay tax on. This may not agree with everyone's view of fairness. - LVT encourages building tall and is hostile to lowrise development and unbuilt/green spaces. Those policy preferences may not be shared by everyone. >> Of course, most present systems of property taxation are subject to the exact same issue. This is not really true. There are constant sales of building+land in cities and estimating building+land values can reasonably be done. In a city bare land almost never trades.So you have to extract land values from building+land sales, which is much much harder and possibly impossible to do fairly.

slashdev 3y ago
That does seem difficult to do.
eru 3y ago
> - There are deeper problems with valuing land. Land values in cities are directly related to approved zoning (i.e. what you are allowed to build), so the city government can rezone neighborhoods and unilaterally alter the land values the residents pay tax on. This may not agree with everyone's view of fairness. That's actually a feature, especially if you make sure that the authority who can do the zoning also gets the revenue (or at least shares in it). That way aligns incentives. > - LVT encourages building tall and is hostile to lowrise development and unbuilt/green spaces. Those policy preferences may not be shared by everyone. LVT doesn't do anything like that. The whole point of LVT is that it has no influence on land use choices: you literally pay the same LVT no matter how you use the land. It doesn't encourage or discourage anything. That's why it is economically efficient. (However, alternative taxation schemes like income tax or capital gains tax or taxes on improvements do discourage building tall. And if you lower those taxes, people will build taller. Btw, I think that for all its faults a conventional property tax that doesn't distinguish between land and improvements is still miles better than income tax or capital gains tax or sales tax etc.) > In a city bare land almost never trades.So you have to extract land values from building+land sales, which is much much harder and possibly impossible to do fairly. Often land changes hands and the new owner tears down the structure and build a new one. You can reasonably assume that the old building was valued at zero, or even negative because tearing down costs money and time. So that gives a lower limit on the price of the bare land.

avar 3y ago

> 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.

sideshowb 3y ago
Given the friction (inconvenience) in having to move house/business etc, that hardly seems fair. It also defeats the object of land ownership if you can be kicked off it at any time.
- avar 3y ago
  You can trivially structure such a tax in such a way that going through a "forced sale" is going to be very lucrative (edit: elaborated in a sibling comment: https://news.ycombinator.com/item?id=37909570 https://news.ycombinator.com/item?id=37909570). > It also defeats the object of land ownership[...] So no, most people could keep land they'd like to keep in practice. The entire notion of any sort of property tax is also predicated on the idea that individual land ownership is a tradeoff between the interest of the individual and society at large.
  - sideshowb 3y ago
    > The entire notion of any sort of property tax is also predicated on the idea that individual land ownership is a tradeoff between the interest of the individual and society at large. Indeed, and I like this concept, I don't think we should ever "own" land in the same way as I own, say, my phone. All we ever do is borrow it from society (or even nature). However, some aspects of land ownership are a net positive for society at large. In particular, the incentive to look after it better if it's really yours until you sell it or you die. With this in mind I like some proposals I've heard whereby unpaid land value tax can be accrued to be paid at death or on sale. That way the stewardship aspect of ownership is reinforced without the freeloading on land value increases. Returning to the valuation question. I think you're assuming an efficient market when it clearly isn't one. It would be like having to reapply for your own job, except it's rebidding for your own house. Not a kind thing to do to anyone.

AnimalMuppet 3y ago

To me, the biggest downside is that the government is running this. If the government turns on an LVT, do you trust them to turn off other forms of funding? Or do you think they're just going to decide that their income went up? I kind of trust them, but I don't have very high confidence that they won't decide that they "need" the extra money, maybe just for some "emergency" situation...

eru 3y ago
The nice thing is that lowering other taxes automatically increases the LVT tax take via higher property prices. You can see that dynamic on the border between Switzerland and Germany: Swiss income taxes are a lot lower, so their property prices are higher. (You can probably see similar things happening on some borders between American states?) Without an LVT, those higher property prices only benefit the land owner. With an LVT, the government gets some incentive to lower those taxes. > If the government turns on an LVT, do you trust them to turn off other forms of funding? Or do you think they're just going to decide that their income went up? I guess it depends. Governments have an incentive to get themselves more budget, but taxes also aren't just ratcheting up all the time. Eg the US still has lower income taxes than most of Europe. And tax rates also change over time.