
Land-value tax: Why Henry George had a point - eru
http://www.economist.com/blogs/freeexchange/2015/04/land-value-tax
======
mamon
There's an ongoing discussion in Poland about land-value tax. The problem here
is that such tax is seen as a form of asset forfeiture. Why? Because of the
communist times legacy.

In 1970s and 1980s there were a lot of apartments built by communist
government, most of which were given to average citizens either for free, or
for some insignificant amount of money. Now almost 40 years passed and we
ended up with millions of people still living in those apartments, which they
got back then, or inherited.

Now, especially after Poland joined EU, market price of those apartments
skyrocketed, while owners income levels stayed pretty low. So, if government
introduced land-value tax most of those people would not be able to afford
paying it, effectively forcing them to sell their apartments.

I don't know how such tax would work in different setting, but here in Poland
only visible effect would be rich people taking over properties for discount
prices.

~~~
tehwalrus
If the value of the apartment is high, then it wouldn't be sold for a discount
price, would it?

The value might be affected by the tax, I suppose, but the person buying it
would be affected by that too when they came to sell.

Land value tax is based on the premise that if you are land-rich, you should
also be "more productive" to earn the right to keep the land.

Final point; apartment buildings generally have a lower land value than you
might expect given the sale price (see my other comment), with a small square
footage spread over many apartments in high-rise, the tax may well be less
than you expect (i.e. much of the value may be in the rebuild cost.)

~~~
mrow84
If the people who currently own the apartments have to sell because they are
unable to afford the taxes then they would be in a poor bargaining position -
they would pay for their "desire" for immediacy. Those who purchase the
apartments would, therefore, be paying below the market rate (defining the
market rate based solely on people's desires, without including their
financial position).

~~~
tehwalrus
Immediacy is a problem, yes. That's why at the start of a LVT people must be
allowed a grace period of a couple of years to pay. Some argue for deferring
such taxes until the property is sold or inherited, but that could lead to
even worse situations like the one described.

~~~
mrow84
Mightn't the deferral of tax payments until newly-taxed properties are sold or
inherited remove (or at least reduce) the time correlation, thus improving the
market position of the sellers?

Avoiding any adjustment in ownership patterns seems impossible to achieve
without strong legislation, but attempting to provide adequate compensation
through the market (rather than the government) seems like it might work?
(question mark because I really have no idea...)

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milesvp
There was an interesting post around this very topic related to Eve Online in
the last couple of years.

[http://gamasutra.com/blogs/RaminShokrizade/20130405/189984/H...](http://gamasutra.com/blogs/RaminShokrizade/20130405/189984/How_I_Used_EVE_Online_to_Predict_the_Great_Recession.php)

What was interesting was that the poster found that factories in game were
highly underutilized, and after convincing Eve Online to raise rents, he found
that the factories tended to change hands be much more productive.

~~~
eru
Eve Online continues to surprise me as a place of social economic experiments.

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Hermel
Makes sense, but hard to implement.

Switzerland taxes the Eigenmietwert (self-renting value) of properties. If
live in a self-owned flat, the amount you could have earned by letting the
flat to someone else is taxable income. This makes sense in economic theory,
but it is not very popular.

~~~
ownagefool
It's pretty trivial to get round though, give people an exemption on the
primary residence. That way, the vast majority are unaffected yet those that
invest in land are.

In the UK the system is already quite a bit like this. When I sell a BTL
property I need to pay Capitial Gains, but not for my primary residence. Sure,
it allows some loopholes, but it'll probably save you a lot of votes too.

~~~
eru
> Sure, it allows some loopholes, but it'll probably save you a lot of votes
> too.

Alas, yes. Not only loopholes, but favours homeowners, who are already among
the better off, over the real poor.

~~~
ownagefool
Indeed it does.

However as you move away from owning being an investment, the same homeowner
based wealth will deteriorate and you'd likely own where it's convenient
rather than trying to make money.

I don't think that's a terrible situation if your goal is to take the teeth
out of the property market, rather than trying to destroy wealth in general.

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transfire
In the States we have property taxes, and it doesn't lead to utopia. Instead,
when times are tough it drives small business out-of-business and people out
of their homes, and only further enriches the wealthy who snatch up the
foreclosures on the cheap.

~~~
tehwalrus
Property tax != land value tax. Properties in foreclosure may well have very
low land value.

~~~
mark212
no, in the US at any rate property taxes are scaled exactly by land value.
Usual scheme is 1% or so of assessed value, which is typically recalculated
yearly. Some states have "homestead" exemptions where the first, say, $150,000
of value on a primary residence is exempt from tax. There are also (at least
in California) special assessments for a fire or water district that are put
on top of the yearly property tax, usually because of state laws that limit
the rate at which assessed value can be increased or super-majority provisions
for altering property tax rates, and so on.

~~~
tehwalrus
Land value being the value of the land less the rebuild cost of any
structures? That is the definition I was using. House prices are the wrong
metric.

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mazsa
"the Nobel-prize winner Joseph Stiglitz [...] argued in a recent paper that
land and housing, rather than the distribution of income and productive
capital, are the key to a fairer economy."

Link: [https://www.nber.org/papers/w21192](https://www.nber.org/papers/w21192)

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nraynaud
isn't that forcing people to develop land that we might not want to see
developed? like coastal areas, islands etc.

That would mean a big crust of hostels/wealthy houses along the coasts and
gradually seeing normal people live when you go further inland. It's already
occurring, but I don't think that's a trend we should reinforce, and the State
is has the power to meddle to prevent the market power from doing very bad
stuff.

~~~
twic
You'd have to reduce the tax in areas like that. You can probably justify this
by saying that land in an area where development is restricted isn't worth as
much as land elsewhere.

~~~
eru
If the tax is proportional to land value, and the development restrictions
imposed make prices drop, than the reduction in tax is automatic.

------
hippich
Article written from small-country perspective, it appears, for which case it
seems to make sense. But try to explain to farmer who owns a ranch in the
middle of nowhere in Texas that he should be paying for roads mostly used to
bring goods from other states to Houston/Austin/San Antonio.

~~~
liberaliter
The land value of a ranch in the middle of nowhere would likely be very low -
it'd also be reasonable for him to receive a stipend for the use of the road
(cancelling out the tax?)

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transfire
Why does no one ever talk about implementing a usury tax?

~~~
tehwalrus
??

Lending money is a (in the UK highly regulated) business venture, subject to
all sorts of taxes.

Buying land and sitting on it for decades is not.

------
cm2187
This enthusiasm for taxation doesn't really motivate me to renew my
subscription to the economist. There is something fundamentally wrong with
taxing an absence of income. The French socialist party had a similar idea,
they wanted to tax homeowners who occupy their property based on what rental
income they would get if they were renting it out.

In London the primary cause of the housing crisis isn't unused lands. It is a
combination:

1\. very restrictive planning, which doesn't allow to build up except in a few
limited spots. We end up with this absurd outcome of 3 storey houses
everywhere and skyscrappers in 3 or 4 areas. Instead London would be much
better off allowing to build 10 storey buildings everywhere.

2\. Terrible infrastructure choices made decades ago which are now impossible
to reverse. London has kept the narrow streets from XIX even when it had an
opportunity to plan a better urbanism after the war. And the tunnels in the
tube are too narrow to support the current traffic.

More taxes isn't really going to change any of that.

~~~
ZenoArrow
The skyscrapers do seem a bit out of place in London, but I wonder if that's
just a temporary issue. I remember reading that there were similar objections
to the Eiffel Tower in Paris around the time when it was built. Perhaps they
only look out of place because you remember what it was like before, or
perhaps they'll always stick out.

Are there limits placed on the heights of buildings in residential areas of
London?

As for narrow streets, I'm glad they kept them. Compared to some other big
cities London feels more 'human friendly' (for want of a better term), wide
streets can make a place feel more car focused, less a place that feels like a
destination and more somewhere you travel through to get to where you want to
be. Dedicated bike lanes are the only changes worth making IMO, but you can
create that by working with the existing roads so long as you reduce the
demand for cars. It seems that the London Underground has been increasing in
capacity over the past 10 years or so, hopefully that will continue.

~~~
paublyrne
Tall buildings are not all bad.

Dublin has had strong restrictions on building height since the 1960s. An
argument for this was to maintain the character of the city, although the
destruction of many Georgian buildings was allowed by planners, on spurious
health and safety grounds.

The worst effects of the policy were felt during and after the boom of the
early 2000s, when accommodation was built further and further out from the
city, leading to sprawl, and a commuter belt that stretched 100 kilometres in
all directions, which put immense pressure on transport infrastructure. With
so much construction, this represents in hindsight a missed opportunity to
create more liveable centres or hubs in the style of London or other large
cities.

Allowing taller structures for residential purposes in central city areas,
would have improved Dublin's liveability. Instead, there is now a critical
housing crisis that no one seems to know how to solve.

~~~
ZenoArrow
What do you think of the ideas in this video:

[http://youtu.be/Hy4QjmKzF1c](http://youtu.be/Hy4QjmKzF1c)

I believe it captures most of what is important in making a livable city that
people enjoy living in.

