How a change to America's tax code could fix the housing crisis

[Jilly_in_VA]

A six-word phrase keeps popping up on my Twitter feed: “Land value tax would solve this.”

In response to the inefficient use of land as parking lots. As a policy to help fund a universal basic income. And even (jokingly) as a prescription for the rise of virginity in young men.

The big question land value taxes help answer is: How can a government raise funds without distorting choices and possibly leaving people worse off? If you tax income, it provides a disincentive to work. If you tax property, it provides a disincentive to improve the physical buildings on top of the land. Sometimes the tax is intentionally disincentivizing an activity — think carbon taxes to reduce greenhouse gas emissions or so-called “sin taxes” on tobacco. But there are also taxes governments want to levy to pay for valuable services without changing behaviors too much (or at all).

One of the most straightforward solutions a land tax offers is to America’s housing crisis. That crisis is caused, in part, by the failure to appropriately use valuable in-demand land for its best purpose. Millions of people want to live in New York City, Los Angeles, Washington, DC, or Seattle, but local tax regimes actually punish people for investing in their property. When people improve their property — either by adding a new room or building an entirely new structure like a multi-story apartment building, they’ll pay higher property taxes.

But this isn’t just a big-city problem. In small towns, vacant lots contribute to decline — and if there’s no valuable structure on a property, its delinquent landlords likely only pay a nominal property tax. This both lowers tax revenue and hurts neighborhood quality for everyone else.

Here’s where a land value tax can come into play.

https://www.vox.com/policy-and-politics/22951092/land-tax-housing-crisis

[MaryMagdaline]

1. Thank you for posting. Interesting idea I've never even heard of

One of the many benefits of reading DU … reading alternative views from others

[bucolic_frolic]

2. I think it a terrible idea

Good luck converting from one system to another. Would it "force" development for financial reasons to pay the land taxes? People do hold land because they like space. It might be appropriate for dense areas. That Toomey is for it is a big red flag in my mind. He's no friend to human beings.

[MichMan]

3. I don't understand why we need a new system of taxation

I own vacant lots adjacent to my home and pay separate property taxes on them.

The statement below I find to be absurd as it also applies to house appreciation as well if you change the word land to land + house.

"In other words, since people who own land aren’t actually responsible for it increasing or decreasing in value, it’s pretty absurd that they get to accrue all the benefits of owning a piece of land without having to do any work for it."

[Beastly Boy]

4. Wishful thinking.

If land was just land, then there would be no significant fluctuations in its valuation from one location to another. But the value of and demand for any particular parcel of land is defined in large part by the structures, or absence of structures on that land. Land tax would incentivize land owners to lower the value of land so they pay fewer taxes. Imagine parks and restaurants being replaced by radioactive waste dumps (a very profitable enterprise for land owners). Not only the value of a particular parcel of land would be affected, but so will the value of all the surrounding parcels as well. There goes your tax revenue!

[GregariousGroundhog]

5. Not really

Say for example that a city like New York decides to charge land owners a flat rate along the lines of $100,000 or $250,000 or $500,000 an acre regardless of what structure sits on top of it. Because the tax is based on the amount of land owned and not the structure that sits on top if it, it becomes more cost effective to build taller.

[Beastly Boy]

8. If I understand you correctly,

you are proposing that municipal authorities set a fixed tax per unit of land. In this case,your example implies that a municipality will effectively provide incrementally more of their services to a high rise than a one family house that occupy identical areas of land and get equal taxes from each in return. What it esentially means is, under the best of circumstances, the owner of a one-family unit will subsidize the services for a high rise. And at worst, the municipality will not sustain such inequality in their maintenance of infrastructure, and will have to raise taxes elsewhere, on everybody.

[GregariousGroundhog]

9. Your analysis is correct

Such a tax would drive land use toward activities that have a high income per unit area. Single family houses in medium and large cities would be harmed, as would agricultural land in small cities. It would also penalize big box stores in favor of smaller, more local shops.

It's a tool that may have a place in certain situations, but it is not a silver bullet.

[fescuerescue]

7. Land that has lots of potential to be developed

usually get's developed or sold to someone who can develop it.

Essentially this law is attempting to force people to make easy money.

Which is weird because a tax incentive to make easy money is so rarely needed.

[fescuerescue]

6. If the land isn't viable to build on now

I'm not sure that taxing it harder would make it more viable.

I suspect that this would do one of several things

1) puts lots of land owners into default. The government would end up owning the land and no taxes would be collected. It would be hard for the government to then auction off already undesirable land, but which now carries a hefty inventory tax.

2) Owners that own both developed property and undeveloped, would increase rents on the developed to subsidize the undeveloped.

3) Owners would indeed be induced to develop the land and put housing on it. But since it's already deemed unviable, developers would only build luxury housing so make sure it pays off. I just can't see already unviable land being used to build low profit housing.

I'm not automatically against such a tax. just trying to reason through the unintended effects.

In the end, I don't think I'm convinced that raising taxes would force people to build low or middle income housing. It MIGHT force them to develop luxury housing, but that doesn't seem like the desired outcome does it?