Short term it would create a strong incentive not to hoard property. If it's not rented out it is losing money. Landlords would scramble to rent them out - driving up supply.
Medium term rents would decrease, too. A land tax would create a powerful incentive to yield low density housing in high value locations to be redeveloped into high density housing - increasing supply.
What would also go down is property prices. Significantly.
It would kill all political will to fight redevelopment too. There would be no point fighting to declare a launderette historic to prevent it from being turned into apartments. Desperation for local housing wouldnt get directly turned into home equity and higher rents like it does now, it would just jack up your tax bill.
The idea that you can tax an input more and reduce prices is ridiculous on its face.
> Demand for housing would remain the same.
Also unlikely. Basically any change in local conditions will impact housing demand one way or another. The global number of people needing housing may not change, but that’s not housing demand (globally or locally).
> Short term it would create a strong incentive not to hoard property. If it's not rented out it is losing money.
Property tax already does that, and most places have properry taxes. Also, the fact that property has non-tax maintenance costs does that. “Hoarding real property” is largely a theoretical concern.
> Landlords would scramble to rent them out - driving up supply.
Except they already do that, but higher taxes would raise the break-even price.
> Medium term rents would decrease, too. A land tax would create a powerful incentive to yield low density housing in high value locations to be redeveloped into high density housing - increasing supply.
No, it wouldn’t: housing demand already does it, the constraint is regulatory (zoning control) not the desire to build. Higher taxes on lans drive up costs without dealing with the constraint. Deal with the constraint and you’ll see development because more housing on the same land is more money for the landlord even with 0 taxes. All more taxes do is raise the break-even rent.
> What would also go down is property prices.
Nominally, but the cost of ownership would stay the same or be higher, some of it moving from purchase price to taxes.
> It would kill all political will to fight redevelopment too.
No, the political will to kill redevelopment would just also be political will to kill the taxes.
> There would be no point fighting to declare a launderette historic to prevent it from being turned into apartments.
There’s no financial case for that now, and higher land taxes wouldn’t erase nonfinancial political motives.
>The idea that you can tax an input more and reduce prices is ridiculous on its face.
Of course. It would absolutely reduce the price of property.
Just not rents.
>Basically any change in local conditions will impact housing demand
Hand waving.
>Property tax already does that, and most places have properry taxes.
When high enough property taxes do inhibit hoarding, yeah. They approximate a less desirable form of land value tax.
In my city property taxes are capped at an absurdly low level and property is hoarded like bitcoin while people die on the street. Tax policy at work.
>Except they already do that, but higher taxes would raise the break-even price.
Remember when you said?
"The idea that you can tax an input more and reduce prices is ridiculous on its face."
You were absolutely correct. PROPERTY prices would decline to compensate for the higher taxes.
That would in turn keep the breakeven price more or less the same for developers.
It would also reduce the capital intensity of property development since the cost of the land wouldn't be front loaded.
Dont get me wrong. This would turn property owners into renters of a kind (renting land from society) and this would make a lot of property owners furious - and probably violent. It's not a panacea - it's just a way to euthanize one kind of economic parasite.
Taxing land doesn't increase rent; it's an inelastic good with greater demand than supply. See Ricardo's Law of Rent, Henry George, or basically any analysis of land tax (or indeed, taxing any monopoly good). The incidence of land tax is well known to not fall on the tenant.
It is passed on to the consumer but the consumer in this case is the landlord not the renter.
There are two markets with two types of consumer here:
1) The market for a roof over your head. This is highly (but not completely) inelastic. People need somewhere to live.
2) The market for property as an investment. Higher taxes on an asset disincentivizes ownership of that asset. This is elastic because there are tons of other asset classes you can pour surplus wealth into.
Effectively a land value tax already exists for renters - in demand locations have higher rents. The "tax receipts" just dont flow into government coffers.
Depending on how high and fast it was raised it would likely lead to a steady stream of landlords defaulting on their mortgages and leaving the banks holding the property.
(Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord.
This is actually very easy to see in countries with no 30 year mortgages, because landlords have to refix their mortgage rates every 1-5 years. This means you can see regular landlord cost changes as interest rates fluctuate, as well as the impact on rents.
The impact on rents is essentially 0 as landlord costs change; instead, rents follow tenant incomes, because landlords are able to charge more as long as tenant incomes increase.
I've got plenty of data from New Zealand if you're interested, but I'm sure it's the same everywhere there is supply-constrained housing.
> Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord.
Rising tenant incomes. As incomes increase, landlords are able to increase rents proportionally. This is only true where demand outstrips supply, but that's the case in most developed cities in the West, as well as many other cities.
Tenants have several fixed costs to pay: taxes, food, rent, and transportation being the main ones. If their incomes go up, rent typically consumes the increase, because housing is a fairly uncompetitive market.
Why would you want farms in urban settings? We have plenty of farm land as is, in fact if many cities were more densely structured rather than suburban there would be even more farm land.
A land value tax wouldnt tax density it would just tax the value of the land.
This would encourage property density in high value locations like inner cities but wouldn't enforce it.
In terms of farmland it would just mean that farmers rent the land from the government rather than, say, blackrock or bill gates (two of the biggest owners of farmland right now).
This would not affect food prices by much it would just mean that when you buy food from those farms, instead of ~15% of the price flowing into bill gates' pocket it would flow into government coffers. Bad luck Bill Gates. Bad luck Blackrock.
> A land value tax wouldnt tax density it would just tax the value of the land.
I wasn’t responding to an LVT suggestion, but a suggestion of taxes that would be based on density of use and go up for lower density. I quoted the suggestion in my response. LVT is a whole different thing.
The value in LTV would be influenced by density. If every parcel around a plot of land is dense the total value would be higher. So tax the land at the average density of surrounding parcels and allow for unlimited density. That would incentivize density and development where it is needed and prevent a single hold out from inefficiently blocking development.
