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Rewarding Neglect and Punishing Investment in Struggling Neighborhoods (strongtowns.org)
108 points by oftenwrong 43 days ago | hide | past | web | favorite | 118 comments



Big fan of land value taxes. They apply pressure to make the best use of the land rather than sitting on it. However, I'm not sure it will help cities like Baltimore, where they were unable to turn things around even by giving away houses for $1 and no taxes for a few years.

In a city, you're more dependent on the government to take care of things, and in most US cities, with single party control, it does not happen. They don't take care of crime. They let infrastructure decay. The schools are crap (despite high per-pupil spending). They make crony deals with the unions on pensions and benefits that are not possible to fund.

Not feeling safe and with a bleak future for their kids, people move out. I've seen this happen over and over again with coworkers who initially were big on city living, but eventually moved out when they got mugged or had kids.

The result is insane taxes as population leaves, and subsidies from the surrounding areas to try to keep the failed city afloat.

The high taxes and obvious government incompetence then act as a moat to keep people out.


> Big fan of land value taxes. They apply pressure to make the best use of the land rather than sitting on it.

I like that Land Value Taxes hurt anyone hoarding land to ride the rising assessments (which is a major problem today). But I don't like that LVT punishes people for productively using land. Land Value Taxes apply pressure to make the highest capital return on every piece of land, which is not the same thing as the best use of the land, and would hurt many good uses of land that are not profitable.

> In a city, you're more dependent on the government to take care of things, and in most US cities, with single party control, it does not happen.

Yep. And what's worse, most cities intentionally want to make all of these things worse.

Cities are often intentionally destroying their infrastructure (tearing down useful-but-unloved infrastructure for useless-but-pretty replacements) and intentionally destroying their affordable housing (purposefully gentrifying areas of their cities, to drive out residents deemed undesirable)

The cycle of driving people out of the city by attacking housing/transportation/services is not an accident, it's not happenstance. This is an intentional design goal baked into how they frame every problem and how they approach every change. It's not something anyone will admit to upfront, but if you travel through Urbanist circles long enough, you can get into the behind-doors conversations they have and see this in action.

> I've seen this happen over and over again with coworkers who initially were big on city living, but eventually moved out when they got mugged or had kids.

Yep. And if you escape the crime or the school problem, they'll hit you on housing or transportation instead. There's no escaping the never-ending list of problems forced upon residents.

Suburbs are the place for affordable housing. Suburbs are for functional schools. Suburbs are for sustainable living. Suburbs are for decent infrastructure. Suburbs are for diversity, especially on the low-income/working-class side of things. Suburbs are the place you begin your startup in a garage, because Suburbs are the only place cheap enough that a regular person could have a garage at all.

Cities aren't for people. Cities are for the conglomeration of capital, and capital alone. Humans need not apply.


> "Land Value Taxes apply pressure to make the highest capital return on every piece of land, which is not the same thing as the best use of the land, and would hurt many good uses of land that are not profitable."

(highest and) best use [0] is generally understood as maximizing economic return, so you're essentially arguing semantics here.

with that said, i agree with the underlying sentiment that it's not the only "return" we should consider. maximizing economic return fails to capture the richness of the human experience in often obvious but not easily quantifiable ways, which is why we let economists get away with such unrealistic models.

but your position on suburbs (vs. urbs) is baffling (and idealistic). suburbs externalize their costs to achieve that cheap living. implementing an LVT would (presumably) take that advantage away.

[0] https://wikipedia.org/wiki/Highest_and_best_use


They weren't "giving houses away for $1". They were requiring people to assume the liabilities related to code and zoning compliance, along with a remediation schedule, in order to take ownership. And those expenses couldn't be paid by a mortgage loan; the city had to issue its own loans.

Typical monthly payment was $300/month, and they had a low default rate, so it was still a decent deal. But it wasn't just $1.

House flipping is a career for some people. Every last one of them look at probable resale value after remodel in comparison to expenses required to reach marketable condition. No flipper would do $100k of work on a house when the neighboring properties simply don't sell at any price, and tend to remain vacant after foreclosure.

And that's the "location" factor talking. I don't know if it's the first, second, or third "location" in the list, but if a city culture or city government sucks, people and businesses don't want to move there.

I have seen it in every city I have lived in. The local government takes ever-increasing amounts of your money, and digs entirely separate holes to throw that money into, rather than any of the naturally-forming potholes on every street that isn't part of some councilman's route to city hall. The governance that worked with steadily increasing population doesn't work with stagnant or decreasing population.

At some point, a declining city needs to de-annex some of its former territory and prune its own deadwood. And it needs to fire its municipal employees that are not absolutely essential to keeping the city infrastructure running. Some shut down their city police and fire departments, reverting to sheriff's deputies and volunteer firefighters, who may even operate out of the same buildings. But the problem is the politics. Admitting the city is insolvent and promising to cut some services to save the rest doesn't get you re-elected when your opponent simply denies the problem exists and lies about the city's condition to make people feel better about still living in it.


> And it needs to fire its municipal employees that are not absolutely essential to keeping the city infrastructure running.

There is nothing more challenging than firing incompetent city employees. And if they can lodge a discrimination claim against you (regardless of whether it has ANY merit) then just forget about it. Promote them up and out. What a cesspool.


> Big fan of land value taxes.

Pardon the negative knee-jerk reaction, but I have seen land value taxes used abusively and in the most coercive manner you can imagine. It still makes my blood boil.

Back when I lived in Minnesota, the metro area interests were rezoning farm land as residential, and then taxing it at residential property rates, even though it was still used for corn fields and pasture. This was utterly destroying family farms.

Now before you accuse me of NIMBY-ism leading to housing shortages.... this was to create new ex-urban housing areas with 2.5 to 5 acre minimum lot laws. There was no shortage of places to build houses. Houses for sale sat on the market for months. This was driven by politicians and developers in cahoots to shove aside people that were in their way, and coerce them to disgorge their property and give up their lively-hood through unjustified perversion of the tax code.

Using the tax code to rob people of their property rights is not the answer. If you want to live in a kleptocracy, there are several you can move to. Maybe you will be one of the lucky ones and the state won't rob you.


>They don't take care of crime. They let infrastructure decay. The schools are crap (despite high per-pupil spending). They make crony deals with the unions on pensions and benefits that are not possible to fund.

To expand on this point, why would there be any institutional will to take more than a token effort to do any of those things? It's not like they risk getting voted out by someone who isn't on the same side and will leave the root system of the party's power to control government mostly intact (doing the opposite would anger enough people to not be in the self interest of anyone who gets elected).

Even if you keep voting in different politicians who actually want to do anything you're never actually getting a major refresh until you get someone from a different party who aggressively appoints a different set of cronies.


That won't always help. Look at Bay Area. Best value and economic return would be investment banks and tech companies. And then people would start complaining of even more gentrification. The metric governments should be aiming for is making cities MORE affordable than e.g. suburbs. Cities can offer a higher quality of life (in the sense of easy access to food and transportation) due to higher productivity and scale. Home ownership should be priority and subsized (apartments aren't that expensive to build at scale if you are willing to go prefab and pull in workers from Mexico.) Also, aesthetics complaints need to be disregarded. Most cities would end up looking like Seattle and New York anyways, complaining about tall buildings is just short sighted. Trying to have both economic benefits of a dense population and a "pretty" (i.e. rustic-looking small town hippie style architecture) is just not feasible on a large scale. Sure you can have a few pockets here and there but making it the central tenet of your urban planning will just cause more homelessness. You can't both have your cake and eat it too.


Harrisburg, Pennsylvania adopted a split-rate property tax system which penalized land more heavily than improvements. They saw improvements across the board, including in terms of crime rates, the rates of fire, etc.

https://blogs.ubc.ca/rosonluo/2013/04/08/land-value-tax-poli...


"At the same time, the city's infrastructure is aging and requires more maintenance than it once did."

The thing which is aging is more likely the base of city employees and retirees who were promised defined benefit pensions which were underreserved for and routinely looted, over a period of decades.

Erie, for example, has an unfunded liability of about $90 million against a total annual budget of ~$115 million. (As is typical, the lion's share is police/firefighters.)


Another article from Strong Towns made the point that infrastructure like roads tends to only last about 30 years before needing complete replacement. In many towns this infrastructure is paid for by assessing fees on new development.

Once the city stops expanding, you now have no tax base to pay for all the existing roads needing replacement. All those replacement bills come due: the "aging infrastructure" needs more maintenance.


Are there any road structures that will last longer than 30 years? I've heard that there are other materials used overseas that do, but I don't know the subject well enough to ask effective questions about it.


cobblestone


Erie County, Pennsylvania, has an unfunded liability of $9.7 million, according to line 7 of section 2.5 of their 2018 annual report.

The annual required contribution is a mere $4.3 million

Their pension is 99% funded. I don't know why you'd bring it up, since it is unrelated to the article.

Fixing pensions won't change the fact that neglectful landlords get rewarded under the current taxation scheme.


The City of Erie, Pennsylvania, is the Erie on the hook for fire and police pensions. https://www.paauditor.gov/media/default/MunPenReporting/RPT_...

Why bring it up? Because cities are special purpose vehicles to fund police/firefighter pensions which have a side hustle in providing civic infrastructure. That's quite relevant to the question of why costs are increasing (because politically powerful people got placated), whether investments in infrastructure will reduce costs (strictly impossible), and whether property developers are to blame for underfunded infrastructure (they do not receive checks from the city every month).


That seems like just some random place not mentioned in the article?

The article mentionedthe county of Erie. And the quote wasn't about any city in particular, just about generic "many older cities".

The city of Erie didn't come up in the article.


> The city of Erie didn't come up in the article.

"Joshua Vincent’s piece on land taxation in Pennsylvania examines relative tax rates in Erie County, Pennsylvania, finding that property owners in the city of Erie proper pay close to double the taxes that those in many of Erie's suburbs pay."


Unfunded pension liabilities are absolutely related, as they represent part of the "vicious cycle" described in the article. Both Erie County and the city of Erie are mentioned. The comment to which you replied was referring to the latter.


>The thing which is aging is more likely the base of city employees and retirees who were promised defined benefit pensions which were underreserved for and routinely looted, over a period of decades.

Let me ask: How were those pension banks supposed to be funded?

The reason I ask is because my state has a defined pension plan for many public workers. The benefits are defined irrespective to how the market performs. We're also one of the highest income tax states out there. Yet the pension is underfunded. No one's been "looting" it. No one takes money out of it for some other purpose. The tax rate simply isn't enough to fund it. And we have a high tax rate.

Whoever designed this for our state did so with the assumption that market returns would be enough to fund it. It never was a plan of simply collecting tax money. They were wrong. The market returns were not enough.

Current retirees are getting their pensions. We just won't have enough for the next batch at current funding rates.

It's gone to court, and the courts have ruled that there are no loopholes: People will get their pensions, no matter what. So now we're dealing with the "no matter what". We have one of the worst high school graduation rates in the country, and the quality of education overall is rated fairly low. Yet, we can't solve that problem with money. Because for the next decade or two, pretty much all increases in education funding are going to fund the pensions. A number of cities are growing, and the mayors are very clear about the problems: They cannot afford more police officers and other similar employees to keep pace with the growing cities - because all the extra revenue they are collecting in taxes is going to fund the retirement funds.

The only solution the courts will allow is to change retirement plans for those just entering the workforce. But we will have to deal with this problem for a few decades where we must increase all kinds of taxes to pay for pensions, and allow the rest of the infrastructure to decay.

There's no cap on the defined benefits for high income folks, BTW. University football coaches, and retired presidents, get a lot of money (at least one of them gets over $70K/month). Of course, these are outliers. The median is under $40K/year.

Defined benefits is a bad idea. They need to switch to defined contributions from employers, and let the investments dictate their pay (and probably give employees more choices for the investments).


> The only solution the courts will allow is to change retirement plans for those just entering the workforce.

The best time to plant a tree was twenty years ago. The second best time is now.


>The best time to plant a tree was twenty years ago. The second best time is now.

We're still not doing it. Too much public opposition.


Add a new tax, only on payment from city retirements...


What I don't get is how on Earth that was ever legal. A defined benefit retirement service must require you to purchase an annuity, so how is it possible to underfund those retirement founds?


You purchase an investment, but not an annuity - say, some stocks. You make an over-optimistic assumption about how fast that investment is going to grow, because that lets you put less money in this year to fund it. But when the investment doesn't grow as fast as you forecast, you have an underfunded liability.


Can we close the book on this "unfunded pension liability" nonsense? The government can create the raw dollars needed to fund the pensions. Just listen to Alan Greenspan himself shut down Paul Ryan's perverse anti-social security zealotry:

https://www.youtube.com/watch?v=DNCZHAQnfGU


> The government can create the raw dollars needed to fund the pensions.

Only if it wants to collapse confidence in the currency; a major reason we have an independent central bank is to divorce monetary from fiscal policy for exactly that reason.

Also, while the federal government can do that once if it is willing to destroy faith in the currency forever, that doesn't really have any material impact on state and local government options since they can't direct the federal government to do it.


The situation is more complex than that. The US Federal Government can create the raw dollars needed to fund the pensions, and it likely won't crash the dollar. They've been allowing new dollars to flow into the system for years and it hasn't bitten them yet.

The issues are threefold:

1) Printing money reallocates wealth to government-chosen winners instead of consumer-chosen winners. This will destroy some wealth. Although, as long as it does not destroy most of the wealth in the country the currency will likely hold. This issue is made complex because the pensioners were promised wealth way back when, but now the question becomes why are today's taxpayers paying rather than the people who made those promises.

2) We don't know who's wealth is being destroyed (although the numbers suggest it is the Middle Class, imo).

3) The incentive structures created by bailing people out are atrocious. There is no way anyone will make hard decisions and change if they are bailed out. The banks did not meaningfully reform in '08. Cities will not meaningfully reform pensions if they are bailed out way. The rot will accrete as resources continue to be directed to people and institutions who have demonstrated that they do not know how to manage them.


> The US Federal Government can create the raw dollars needed to fund the pensions, and it likely won't crash the dollar. They've been allowing new dollars to flow into the system for years and it hasn't bitten them yet.

It has been doing so, but allowing new dollars to flow into the system has been a policy to avoid deflation that would have occurred without the policy (that is, to reduce the value of the currency in a controlled way), not a monetization of government obligations.

You collapse confidence in the currency not by allowing new dollars to flow into the system in general, but by violating the confidence-building implicit commitment inherent in having an independent central bank, that is, the commitment that monetary policy will not be driven by fiscal concerns.


> to avoid deflation

Currency collapse is extreme inflation; and that goes to the central point - there are a very wide range of numbers between 0% inflation and hyperinflation (20+% numbers).

Government monatisation isn't that much different from any other tax, except for the rather critical fact that nobody knows who is paying it. That makes it the least intellectually honest type of revenue raising, and the most likely to spiral out of control. Bringing it in is a pretty telling indicator that a country is unable to govern itself. It is a terrible idea. But it is unlikely to cause a currency collapse if they print and bail out the pensions. It'll just destroy some wealth.


>although the numbers suggest it is the Middle Class, imo

What numbers are you referring to, exactly?

The Middle Class holds the majority of their wealth in their housing[1]. If they're public sector or over a certain age they have a pension and that's all. You're advocating that we take no action to prevent the collapse of the latter.

>The incentive structures created by bailing people out are atrocious.

We aren't talking about bailing people out, we are talking about bailing pensions out.

>The banks did not meaningfully reform in '08. Cities will not meaningfully reform pensions if they are bailed out way.

After the bailout, the banks swallowed new regulatory burdens, new capitalization requirements, effective caps on their size and interdependence. The Trump administration is unwinding these, not the banks.

Your bet is that the economy will fare better if we let the pensions collapse. My bet is that because the velocity of money at the bottom (where people are dependent on their pensions) is so much higher then that at the top, that the collapse of the pension system will cascade negative effects into the rest of the economy that outweigh the cost of bailing them out.

1. https://seekingalpha.com/article/4116647-stagnation-nation-m...


> You're advocating that we ...

I am? When did I do that? It is none of my business what happens. I'm not advocating anything to do with pensions.

I'm just pointing out that printing money is a tax, not an immediate death sentence to the currency.

> After the bailout, the banks swallowed new regulatory burdens, new capitalization requirements, effective caps on their size and interdependence.

So we've got a class of people who were trusted with vast amounts of power, and they mucked it up and destroyed a bunch of wealth.

The solution is to keep those people in the hot seat, and put in a couple of new rules?

That isn't a sensible response. When people muck up at that magnitude, they should go broke and be ejected from positions of financial power. Let someone else step up and try being in charge. Cushion the blow on households, sure, but the institutions should not be propped up. Change the rules too if that makes sense, but the important thing is to try out new people.


> The solution is to keep those people in the hot seat, and put in a couple of new rules?

Absolutely not. I believe that executives at some of these institutions should have been held criminally liable for fraud. I also believe that people with the least amount of power shouldn't be the ones to take a haircut.

You're focused on the moral hazard of bailing out the pension system, but what about the moral hazard of promising a stable retirement income to working class people, signing a contract to that effect, and just having it disappear.

What does that say about the social contract between businesses and their employees, that a corporation or government be able to make a promise and not keep it?

Who faces the consequences then?


If my college age son gets trapped in credit card debt he can't pay off, I can pay it off for him. And maybe I would do, many parents would.

The problems are (a) he might just get into debt again, for the same reasons he did the first time; and (b) his brothers and sisters might be upset I gave him $$$ for fucking up, or even decide it's clever to emulate him.

In other words, by paying off something I can afford, I would fear triggering a chain reaction leading to something I can't afford.


The moral hazard created by an unfunded pension system can be avoided with adequate legislation. By accepting bailout money, the state could be legally obligated to restructure some of its processes.

What you describe in your family dynamic applies so minimally as to be a strawman representation of the far more complex systems at play governing the dynamic between the federal and state economies.


The only attempt I'm aware of to obligate saving for employees' retirement is the USPS PAEA and it's received some pretty heavy political criticism in the press as "the most insane law" ever passed by Congress, creating a "manufactured crisis" and making the USPS less competitive. [1, 2]

And pensions are just one way a municipality can take on debt. Even if you force them to lock up savings ready for their employees' retirement, they can still load up on debts with municipal bonds, signing long-term contracts, delaying payments to suppliers, and suchlike.

Have there been any examples where a federal bail-out has been accompanied by legal mandates, and it's been successful?

And even if federal pension fund bail-outs bring with them strict rules that prevent them recurring in the same city, unless you can impose such rules on other cities without giving them bail-out money, you've still got the issue that paying off City A's unmanageable pension deficit will encourage City B, which is struggling with its pension deficit, to make it truly unmanageable to get a bail-out.

[1] https://www.cnbc.com/id/45018432 [2] https://www.bloomberg.com/opinion/articles/2018-04-04/congre...


> The government can create the raw dollars needed to fund the pensions.

Having the ability to mint fiat money doesn't mean you can pay for whatever you want. Costs adjust to the amount of money there is.

In the limit case, printing a very large amount of money is the same thing as imposing a 100% wealth tax. It will get you all the purchasing power there is to be gotten... but not more than that. (It will also pretty sharply reduce the absolute amount of purchasing power that "all the purchasing power there is" represents.)


> Having the ability to mint fiat money doesn't mean you can pay for whatever you want.

It actually does when talking about pre-existing obligations denominated in the currency. It doesn't when talking about most other things, but existing pension obligations are pre-existing dollar-denominated obligations.

Now, the feds monetizing all the underfunded state and local pensions would effectively devalue the dollar, so those pensioners (and everyone else on a fixed dollar-denominated income) would be getting far less than they expect for it, and taxing extra money out of the system to counteract the inflationary effect negates the whole idea of monetizing the obligation in the first place—you might as well just leave monetary policy alone and tax money out of the system to pay for the pensions.


>> Having the ability to mint fiat money doesn't mean you can pay for whatever you want.

> It actually does when talking about pre-existing obligations denominated in the currency.

It still doesn't. It means you can default while calling the default "inflation". Doing so wipes out all other currency holders in addition to you, but it doesn't mean you met your obligations.

(This is basically the same thing as you're saying, but let's be clear about what it means.)


You're simply wrong: if the obligation is denominated in your currency, you absolutely do meet it: it's not any kind of default. Yes, the creditor gets less than they would have without the monetization, but that's not default, because currency value is expected to change over time and an obligation denominated in a currency accepts that variability by definition.


>you might as well just leave monetary policy alone and tax money out of the system to pay for the pensions.

That's another potential solution. My point was that there are potentially many solutions that do not involve breaking our promises to working people.


Your claim that inflation is inevitable is addressed by Greenspan in his response. "Too many dollars chasing too few goods" is what causes it. Governments can address that by progressively taxing money out of the system.

It is possible to actually pay workers what they've been promised and not cause an economic collapse. The issue is gathering the political will to do so.


"Taxing money out of the system" requires Congress to do so. Do you actually think Congress will have both the wisdom and the political will to do this right? I don't.

So under this scheme inflation is perhaps not inevitable, but it is almost certain given the dysfunctional mess that Congress is.


Having Congress act is a part of gathering that political will. It usually requires altering popular perception of the possibilities that direct, mass action can result in.

As mentioned in other replies to this thread, there are many potential solutions for the so-called crisis that don't involve reneging on the promises we've made to workers.


You're never going to get the popular will to remove the money from the system, because removing the money from the system means removing it from people.


I don't think progressively removing money from the system would be unpopular. In fact, taxing the rich is extremely popular.

https://www.vox.com/2019/2/4/18210370/warren-wealth-tax-poll


First: Given the amount of money that we're talking about (the amount of the pension deficit), I don't think that just taxing the rich is going to cut it if we need to remove the money from the system. It's going to reach down at least to the upper middle class.

Second: Taxing the rich is extremely popular among the people, but not so much within Congress. This may be because the rich are Congress's constituents in a way that the rest of us theoretically are, but in practice aren't.

Third: For this to work, Congress needs to raise and lower taxes, not based on the popularity of taxes, but on the rate of inflation. Do you really trust Congress to make the right decisions at the right time? I don't. I trust them to make the popular decision, not the right one. ("Popular" perhaps more with the rich, but that's not the point. The point is, they're politicians, not economists. They're listening to what's popular, not to the economic data. They're going to mess this up. The Fed is politically independent for a reason.)


Some other government could (federal), but not the municipal or state governments.

That’s the rub here. These liabilities are hanging around the necks of governments that can’t pull a monetary supply lever.


Bailouts are a tried and true mechanism for addressing this liquidity problem for the private sector. I don't see why it shouldn't apply here.


In the private sector, bailouts were used to address a liquidity problem—if the companies could survive the crunch, they could be in a position to pay the money back. Municipalities aren’t facing a liquidity problem—they’re insolvent. They owe far more than they can ever hope to pay back, because their tax bases aren’t growing at the rates needed to make their obligations manageable.


The question then becomes how to acquire the money for the bailout. You can’t just ask for money or acquire funding through buyout. Tax increases or bonds are really the only sources of money, and they require voter approvals. Costs can be reduced by cutting services or through bankruptcy, both of which bring their own side effects by reducing the appeal of the city or county or by making future debt more expensive.

See this link for a survey of California issues with pensions. The source is the league of CA cities, so there is some bias but the results are still meaningful and eye opening regarding future mandatory spending commitments.

http://www.cacities.org/2018PensionSurvey


I don’t disagree in the abstract. But Erie can’t tell its municipal bond holders, “Don’t worry, we’ll just wait for the bailout. Your debt is safe”

This would make a potential future crisis an actual current one.


Similar piece from The Economist a few years back, but looking at the opposite side of the coin, wildly successful cities with ridiculous housing costs due to poor land use, but still prescribing LVT as part of the solution:

https://www.economist.com/leaders/2015/04/04/space-and-the-c...

Related article on LVT:

https://www.economist.com/free-exchange/2015/04/01/why-henry...

"But if LVTs are so great, why are they so rare?"

LVTs would impose concentrated costs on today’s landowners, who face a new tax bill and a reduced sale price. The benefit, by contrast, is spread equally over today’s population and future generations. This problem is unlikely to be overcome. Economists will continue to advocate LVTs, and politicians will continue to ignore them.

https://www.economist.com/the-economist-explains/2014/11/10/...


Taxation based on the value of the edifice is such a dumb idea it could only have come from the government.

It does precisely what this article says, disincentives improvements, because "the government" is just going to take more of your money.

Seems illegal to boot (although I imagine there's plenty of precedent).

Taxing the land at least has some logic to it. "This land is serviced by this government, you pay for those services".

As well having a high land tax means you're going to build high revenue generating structures to meet your burden.


There should also be a portion of the land tax that comes from the relevant part of the city-owned road network which needs maintenance. Buying a lot in the suburbs which necessitates massive highways and arterials built and maintained should have that factored in the land tax to balance the gap between suburbs and downtown.

In the downtown your land tax would be higher because of demand of lots and higher land value, and in the suburbs it would be higher because of higher per-lot costs to the city.


It's not just the land that is serviced though.

Aren't the infrastructure and service needs (fire department for example) different for no building vs. a one story building vs. a forty story building?


That should be covered in the land zoning code. Land where you're allowed to build a 40 story building should be more valuable than one where you can only build single story.

As well, the taxes on sales in the increased number of stores / sales of leases / income tax revenue from the increased number of residents should cover the increase in service costs.

If they don't, you're not running an efficient government. (Ha. Efficient government).


So if I want to maintain a one story building on land that is zoned for a 40 story building, I have to pay extra taxes even though I'm not using extra services? Seems to me like the best policy would be taking both into consideration.


Yes, because that's the land's actual value.

This is why land-value taxes are unpopular: small landowners (e.g. Mom & Dad) want to be able to hold onto their small single-family homes instead of being forced to sell to a developer who would build a multi-family dwelling.

Cf. Prop 13 in California.


But why the insistence on taxing land at it's full value while ignoring what's on the land? High taxes on just the land force me to sell and to improve the property. High taxes on just the house can force me to not improve. Neither seems ideal. What would be ideal to me is a good balance that rewards improvements without punishing those who don't want improvements. Especially if the owner lives there.


You're thinking like an academic in a glass tower and not a real human.

You wouldn't buy the property unless you had plans to develop it into something. Unless you're the kind of fool who buys 128gb RAM and only uses 4gb of it.

The price of an item should reflect it's use and probable ROI.


I own and develop property. Who looks like the fool now?

Please keep it civil. Hacker News is not the place for put downs, two of which you've included in your short response.


Perhaps, but thats an argument for occupancy based tax, not building-value based tax.


How so? An empty 40 story building surely takes a larger fire department and more sophisticated city planning than an fully occupied one story average house?


Some form of property tax has been around since the feudal era and the idea of a land value tax has been around in western economics since the 1700s.


I always wonder why these articles about growing infrastructure costs and shrinking tax bases are about cities and not the suburbs. You would think the issues would be worse in the suburbs because the lower density would drive up the amount of required infrastructure per house.


Citylab, strongtowns etc. Often discuss the tyranny of the suburbs and how city residents subsidize their infrastructure.


Infrastructure costs don't scale up linearly with distance, they scale up exponentially with complexity.

Suburban infrastructure, while spread further apart than city infrastructure, is usually far simpler to build and simpler to maintain and simpler to replace.

Costs go up a little bit in raw resources (longer wires, longer pipes, etc). But costs drop dramatically in amount of labour, length of time, installation costs, and so on. So usually, it's net-cheaper overall.


But it externalizes its costs: it requires people to have cars, which not only costs a lot of money in direct costs (car payments, maintenance/repairs, fuel), but also has a steep environmental penalty, plus a cost in lives lost due to crashes.


This particular article was about rust belt cities, but most Strong Towns stuff focuses on the suburbs, specifically inner-ring suburbs which are now facing rust-belt like problems all over the country, even in fast-growing metros.

And you’re right, in those places the infrastructure cost per-capita is much worse and the problems are more acute.


Probably because people have been leaving the city and flocking to the suburbs for a few generations now. People leaving the cities plus all the new people means the suburbs are (probably) absorbing all that growth.


> all the new people

What do you mean by this - population growth? Younger generations coming of age and such.


I find the idea of taxing one’s primary residence utterly distasteful. People live and work and buy things..all of which is taxable.

A house sits and does nothing. It doesn’t ‘consume’ anything and if it does consume or it’s residents consume, that’s taxed. We should have consumption tax..not property taxes for one’s primary residence.

We have road tax, gas tax, sales tax, income tax ..we pay for utilities, essential services, schools. But why should we pay taxes for living under a roof and getting married and giving birth and I guess when we die. That’s being taxed for existing.


Property consumes limited space. If anything, property taxes are too low! Look at all the underdeveloped lots that provide a few parking spots next to tall apartment buildings.


Land Value Taxes are what tax the scarce land, not property taxes. That's the article's point: moving away from property taxes towards LVTs creates the incentive to move away from underdevelopment.


There is some merit to the idea but it shouldn’t be punitive but must possess an incentive for it to be developed.

Afterall, possession of a limited resource shouldn’t create a disadvantage to the owner of said possession. That makes no logical sense wrt property and ownership rights.


The limited nature of land is precisely why possession should be costly. Efficient use of land will produce an economic surplus adequate to pay a reasonable land tax and then some. But if someone squanders their land and insists on letting it sit fallow, so to speak, they will pay for the privilege. If it is sufficiently important to the land owner that the land be unproductive, they will be happy to pay the price in the form of the land tax; otherwise, they will sell the land to someone who can put the land to better use.

There is nothing natural about land ownership. The government creates the artificial construct of land as property to avoid the tragedy of the commons, where no one has an incentive to invest in making land productive--for example, by building a home, factory, or farm. A land tax prevents a land owner from squandering the privileges of land ownership.


My point was only for primary homes. I agree that land left undeveloped must be put to use but with incentive, not as punishment.


"possession of a limited resource shouldn’t create a disadvantage to the owner of said possession"

Disadvantage from what baseline? Possession of a limited resource always creates an advantage to start with. If this is not compensated for with a tax, then aren't people going to compete away the value that would have been taxed? In which case it will be lost to society.


Not if it’s a primary home.

There is a tax at source. There is a tax at transfer/inheritance.

If it’s put to use, there is a tax at consumption. The house always wins. The govt always collects tax.

I disagree with the notion that redistribution should be coercion or punitive. A land tax for undeveloped land is punitive. Property and ownership is constitutionally protected. People shouldn’t be punished for being productive and wealthy.


Undeveloped land is not produced, but it is scarce and has value that can be degraded. Hence, a tax on it is not punishing the productive, but guarding against waste.


So are precious metals and top soil and fossil fuels. They are taxed as ad valorem.

Here is a thought experiment:

No one is taxed again and again every year after they buy ..say(and this is hypothetical)..a pace maker that is made with a very rare and precious metal that is a limited resource.

Of course, once the metal is depleted then others can’t avail it to make new pace makers that would help others live. Does it mean that the original recipients of a life saving device must be taxed every year as their particular illness start affecting new patients.

Think of that chronic illness as lack of access to property. And the pacemaker as the home. And the precious metal used to make the pace maker as the limited resource or commodity that is land.

Early adopters have an advantage. There is nothing morally or ethically wrong with it.

What is truly wrong is the punitive financial burden brought about by the mere possession of said asset. It’s incredibly perverse and unfair.

It can be argued that even a nominal property tax is unfair unless it is ploughed back as essential services. Using it for public education is for the greater good and is a mark of a egalitarian society. To use it to funnel money into unfunded pension liabilities of public sector employees under the guidance of unions is unacceptable. To claim it as a right with entitlement is borderline thuggery.


> Early adopters have an advantage. There is nothing morally or ethically wrong with it.

Given the inheritance of land, I think quite a lot of people would argue that there is something unfair about having an advantageous position simply because of your ancestors.

Pensions are deferred pay. It is wage theft - thuggery - to promise to pay people X now and Y later then renege on the Y later.


"Given the inheritance of land, I think quite a lot of people would argue that there is something unfair about having an advantageous position simply because of your ancestors."

It seems like you very frequently hear the opposite opinion, that it is grievously unfair to not have an advantageous position that you should have inherited because your ancestors' land was taken away.

So I don't think that there is any consensus.


> grievously unfair to not have an advantageous position that you should have inherited because your ancestors' land was taken away

I can't parse all the double negatives in this.


I wouldn’t. I think children are property too and parents genes are inherited too.

I suspect that once we start designer babies, they would become property too.

Pensions don’t work anymore. It’s an outdated idea. Just like minimum wage, it’s forced penury for the promise of future wealth. This has only enabled unions and the like to exploit everyone including workers.


> children are property too

The children, and indeed everyone else, would probably disagree with you.

> Pensions don’t work anymore. It’s an outdated idea.

So, what of the period from the end of the useful working life until death? Penury?


https://www.latimes.com/projects/la-me-pension-crisis-davis-... : this is an example of how pensions and unfunded pension liabilities are bankrupting California

At the end of the day, it’s speculation. Instead of spitting on the face of millennials and tech and Silicon Valley, they ought to look at unions and the burden of unfunded pension liabilities.

For most public sector employees, the last salary you draw is your pension for life. Law enforcement and fire fighters retire at 50 and are free to work after retirement. Until a few years ago, unclaimed leave could be cashed in..a caltrans driver took home 400+k from leave accumulated over 35 years. Others take the last couple of years off but remain unemployed getting an average of 4-5% hike annually which becomes part of their pension. This isn’t deferred pay. It’s pension spiking. It comes from unfunded liabilities. Which would put every Californian in debt for years to come and will probably never go away until pension schemes are over hauled.


Maybe it’s time for change. Maybe a UBI. Pensions and unfunded liabilities that include hacks like pension spiking, union negotiating, political shennanigans have made it a corrupt system. Even today, unions are part of political lobbying.

I am thinking UBI of some sort. I would imagine a good way to test UBI would be for those in retirement. By abolishing pension schemes. No pension, higher pay during the working years. It’s fairer to all.


  No one is taxed again and again every
  year after they buy ..say(and this is
  hypothetical)..a pace maker
A pacemaker doesn't need weekly trash pickups forever.


So send a bill for trash pickup the same way a bill is sent for water/sewer usage.

People should not have to pay tax on their primary residence. I'm fine with taxes on every subsequent property and taxes on rental units on the same property but you should not have to pay a tax for owning your own residence.


As a rational asshole, I love the idea of optional billing for trash pickup, because I can save money by dumping my trash in the nearby national park under cover of darkness.

My neighbours don't feel the same way, so we have mandatory trash pickup, a.k.a. a tax.


I pay for my trash pickup, it's not included in my property tax.


I pay to have my trash picked. $110.


Sounds like what we need is property tax that charges different rates based on the use of the land: if it's a high-density condo, it should be cheap (to encourage denser living), if it's a detached single-family home, it should be a little more, if it's a parking lot, it should be extremely high (to discourage wasting land on parking lots), etc.


People should also be taxed on consumption. And for transactions(like bequeathing and inheritance) Not wealth.

Wealth must be encouraged to share using incentives and not coercion. There is still value in freedom to make choices about property. Freedom is the corner stone of a free society. Individual freedom.


Agree.


Lots that provide parking spots are usually required by law

Don't get me wrong, I'm in agreement that this is a bad use of limited space. But the cause of this bad use is "mandated by law", not "accidentally incentivized by a policy". Tweaking the policy changes nothing if the requirement remains


I think you missed the "primary residence" part of the parent, a parking lot would be taxed, a home you own that you rent would be traced, but your primary residence that does nothing but provide you shelter would not be taxed.


This is about Georgism (taxation of the unimproved value of land) but I think it is worth a read nevertheless: https://gravitylobby.club/trashcan.html


In the Bay Area, the county places restrictions on how much built area a lot can have..example: older lots(40-50 years old) that are 10k sq.ft on average usually have a 2000 sq ft dwelling.

The city and county would prohibit them from building additions or in law units or additional rentable units unless they subscribe to a limit. It’s been suggested that it should be no more than 40% of original sq footage.(in one city’s instance)

Meanwhile, new developments are in 3000 sq ft lots and have 2400-2600 sq ft built area leading to property prices from 1 million to 2 million dollars.

This leads to more new housing at high value and hence high taxes. By restricting additions for growing families or multi generational units or multiple units that can be rented, people would have to purchase from new developments.

More taxes for the state(California in this case) and developers benefit. But the high density doesn’t make infrastructure better nor does it address issues like over crowded schools(and over worked teachers)...less open space and traffic grid locks and thinned essential services.

This is my observation about high density developments. I am fond of the notion that embraces the philosophy of the Dunbar Number. Have fixed density that is comfortable..perhaps multiple fixed densities and provide infrastructure accordingly. Once the density : infrastructure ratio has been satisfied, move on and develop adjacent by creating an chain link to the previous planned development.


  new developments are in 3000 sq ft lots and have 2400-2600 sq ft built area
I'd like to see your source for these figures. 400 sqft doesn't even meet setback requirements for a 3000 sqft lot in any Bay Area city I'm aware of.

Likewise, that initial 20% by area (2000 of 10,000sqft) structure dimension ratio sounds made up.


First hand accounts re older properties. All Bay Area cities have to follow mandatory orders for building quotas from a Bay Area organization called ABAG. They advocate high density new developments.

Re newer developments, here is an example: https://www.lennar.com/new-homes/california/san-francisco-ba... : plan 5, icona. Three stories, 2300 sq ft built area approximately. 1.2ish million.

On a related note, I browsed that random google link and clicked on ‘home automation’..basically it’s an Amazon home. Alexa would run your household. I am not sure if that’s a good thing or a bad thing.


  All Bay Area cities have to follow mandatory orders for building quotas from a Bay Area organization called ABAG
No, ABAG has no authority that supersedes any city or planning commission.

  First hand accounts re older properties
... is a crock. Older properties tend to have even smaller building footprint/ total parcel area ratios.

How about one example of any parcel with a residence footprint taking 80% of the parcel area?

As or that Lennar development, you are totally ignoring common area (exclusive and nonexclusive use).


It’s totally just a matter of opinion, but I would argue that property tax (and especially LVT) is perhaps the only type of tax that is completely logical. It is the most justifiable form of tax, since the core role of the government is to enforce your property rights. They will come and arrest someone who is on your property without your permission. Paying for that is the most natural way you could pay a government. Stuff like sales tax and income tax is awkward, easy to game, and very messy. These types of non property taxes have nothing to do with the government’s core functions, and require a huge amount of effort spent on surveillance, reporting, enforcement, and lawyering.


Corruption and ultra high salaries of government officials and police drain the life out of these cities. This is a story playing out in small piggy-banks, ahem, cities all across the nation. I lived in a particularly egregious one called Yonkers, NY for a while. This place is the only city in NY (other than NYC) that goes after your income too in addition to ridiculously high prop taxes.


The Key and Peele Obama Meet and Greet sketch that became a huge meme platform last year has a version where the people being greeted are various areas in the Bronx and Yonkers is the person ignored at the end as Obama walks out.


Good article. The land tax is probably the preferred tax of libertarians, and it does make sense in many cases. But in the case of cities with vastly higher municipal costs than its neighboring jurisdictions, the land tax would still be high enough to ward off new residents, which would just work to keep rents too low, etc. The city will have to see where its costs are, get them under control if possible, and grow its "brand." There are a lot of things that are attractive to a city as opposed to the suburbs, but the negatives would need to be dealt with, too.


A land tax with the same total revenue of a property tax benefits those with houses that are expensive w.r.t. the landvot sits on. This means some people would be worse of, and some better of.

In general, it drives high density and quality development. I might speculate that this will increase demand for housing, which would push up land value.


I wonder if higher density living could lower costs for councils/cities. With more people living closer you would think less money needs to be spent on footpaths and such, maybe less police because they are spread out less.

Also makes me wonder what the maintenance costs of rail are. I don't know much about it but light rail tracks look like they would probably last a really long time without being replaced where as it seems roads hardly last a few years before needing to be resurfaced.


How does the property tax work in the US? How big is it? There is a similar concept in Poland but the values are relatively low and I don't think they affect the economy of cities much. Also, it doesn't get bigger if you renovate. It depends on the square meters of the building.


Each and every MoF is suggesting real estate value tax in Poland. Sooner or later they will get what they want.

In Italy Berlusconi abolished this tax I think but it works in other EU countries.

It ain't such a bad way of taxation. At the right rate it stimulates the economy - instead of being frozen in real estate excess capital (peoples savings) moves into more productive parts of economy. Sorry link is in Polish.

https://ksiegowosc.infor.pl/podatki/podatki-osobiste/podatek...


> It depends on the square meters of the building

Is that the Sq meters of the ground floor, or sq meters when you add up the space of all the floors?

If the former, that sounds like a land value tax—-something that lots of people have suggested would improve construction incentives


We have both in Poland - they're pretty minimal unless you're running a business in there - then the latter shoots up roughly 30x[0].

[0] Provided you dedicate at least one whole room for commercial activity. If you don't then apparently there's no additional taxation. I am not qualified to give tax-related advice though, so don't quote me on that.


Property tax is a function of assessed value of the land plus improvements (generally buildings).


How do you asses land value?

For property value, you at least have an active market to reffer to. Since most land is sold witg property on it, there is much less of a market to indicate the value of plain land.


You compare the value of a given property to that of similar properties in other locations. Let us say you have two identical apartment buildings: one in the city center, and one on the outskirts of the city. It is likely that renting an apartment in the former is more expensive, despite both building being exactly the same. The difference in rental rates between the two buildings is due to the difference in value of the land they are built on.

Further reading: http://kaalvtn.blogspot.com/p/valuations-and-potential-lvt-r...


Property value - estimated construction costs?

Reconstruction costs are something that I think are frequently estimated for building insurance purposes.


How it was explained to me in a business course in college is that capital should be taxed based upon it's economic yield. How much it costs a municipality to service a property shouldn't be taken into account. I've always believed that to make sense, and this article didn't sway me. If I want to sit on some empty land, then the government doesn't deserve any tax revenue from me because I'm not getting any revenue from the land. The government shouldn't be able to tax based upon "possible" revenue - because they are a poor judge of what is possible (as are most people). But they should be able to audit my books to find out what actual revenue is accruing from my ownership of capital. Taxing the rewards of capital is the basis of capitalism.




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