> That implies an added tax burden of $500/month per unit. It's only $500/month per lot if the lot is only expected to have one unit.
In the starting scenario the housing supply are single family homes, so there's one unit per lot to begin with. That it happens to be $500/unit is a coincidence of math rather than a fixed statement. Governments don't levy taxes (particularly an LVT) on a per unit basis, it's only ever on a per lot basis.
> Consider what happens if you only compare LVT to itself, i.e. to see what happens if you raise the amount of LVT by $500/lot.
The point of an LVT isn't to raise it by itself, it's to trail changes in land value.
Even if you were to arbitrarily raise it by $500/lot, the price is still more affordable for the fourplex renters than the house renters. So you should still expect less negative profit from the fourplex than the single family home. That the profit is negative will disincentivize future development, but it would also includes maintenance on the single family homes. And it'd be least bad for the fourplexes, because it's more spread out.
> And wait a minute here, under the existing property tax system the government was getting $500/mo/unit in property tax.
They were getting $500/lot, that happened to coincide with per unit but is non essential. And can't be, an LVT can only ever be charged at lot level. It's a _land_ value tax, not a unit value tax.
> If the typical plot is going to have a fourplex on it and the tax is expected to raise the same amount of revenue as the old property tax then it needs to be $2000/lot and thereby likewise increase the required rents by $500/mo/unit.
Huh? The government is overseeing a certain number of lots. Total revenue given a certain tax per lot is independent of the number of units on the lot. Also the costs, for local government, are largely per lot, in the sense that the maintenance on infrastructure dominated by lot level servicing rather than incremental uses of it. The exception to this would be schools. There's no reason to think that the tax needs to increase to be equal per uni.
> Where the incentive changes is that now you'll want to build not just fourplexes but highrises to try to dilute the LVT over more units.
This implies that the tax is not set per unit, which contradicts your previous paragraph. I happen to think this is correct, incidentally.
> So as soon as prevailing rents can't justify any more highrises, you get no more construction at all. Even if there are still a bunch of abandoned lots.
Construction is generally less discrete than you're suggesting. There's generally various buildings of various degrees of age (and various levels of depreciation) in a city at a given time. Also, most cities have a spread of land values, with land being most highly valued (and thus incentivized to be most dense) in the core and less so as you spread out.
And LVT would, rather than the discrete steps you suggest, probably look like: as it increases there's an incentive to sprawl, and as long as that population is still bringing traffic and receipts into the urban core the urban core will be incentivized to redevelop to higher density. That will bring people in from the previous sprawl, until there's additional demand at which point the sprawl either increases in density or moves further out, etc.
This actually gets at one of the main criticisms land value tax (LVT) proponents have of traditional property taxes, which tax both land and buildings.
Let’s unpack your example with some rough numbers to see where the logic leads.
You assume rents are currently $1,000/month and that a new tax causes them to rise to $1,500/month to maintain the same return. That implies an added tax burden of $500/month per lot. If the lot is 10,000 sq-ft (common for single-family homes where I live), that’s about $0.05/sq-ft/month, or $0.60/sq-ft/year in land tax.
Now let’s look at whether this disincentivizes development.
Say a developer replaces that single-family home with a fourplex:
* Each unit is ~1,000 sq-ft
- Construction cost is ~$270/sq-ft, so total is ~$1.08M
* Required rent for a 5% return = $1,125/month per unit
- The land tax ($500/month) is now split over 4 units = $125/month per unit
* Total required rent = $1,250/month per unit, or $1.25/sq-ft/month
Compare that to the single-family home:
Rent = $1,500/month, also $1.25/sq-ft/month
So the developer earns the same return per square foot, and houses more people on the same land. Renters gain a cheaper overall option at the same cost per square foot. New development isn't disincentivized — it's neutral or even encouraged under a pure LVT.
Where your argument usually does apply is with regular property taxes, because those are assessed on both the land and the structure:
Single-family home is taxed on $240K (structure) + land
Fourplex is taxed on $1.08M (structure) + land
Per unit, that’s $270K in taxable improvements vs. $240K
Unless the land is very expensive, higher-density development pays more tax per unit, even though it uses the land more efficiently. And that penalty grows with scale (e.g. high-rises).
That's the core issue LVT proponents focus on: property taxes tend to penalize building, while land value tax does not. In fact, LVT often makes better use of land more attractive by decoupling the tax burden from how much you invest in construction.
This was a long reply and I’d like to honor it by addressing what you bring up, but there’s a lot so forgive me for jumping around.
Let’s start by noting that we’ve now shifted the argument from “100% of this tax will be charged to renters” to, “this will get passed through to renters who were previously being undercharged.”
It’s hard to directly argue with your anecdote because I don’t know where you are or what your rental market is like, so I’ll address the argument more broadly.
Let’s examine how common that arrangement is. To the best of my search small time landlords of the variety you mention own something on the order of 35 and 40% of rental units. The rest, primarily multifamily (apartments) are owned by corporate landlords.
The corporate landlords were sued by the last admin for price fixing using realpage. I don’t know if or how that case was resolved but I think it’s safe to conclude they’re probably not undercharging.
For the small time landlords, probably some aren’t undercharging and some are. After all, how hard is checking neighborhood rents on Zillow once a year? Even if none are, we’re still admitting at least 60% of renters aren’t getting the kind of deals you mention. So this is a minority case, and probably shouldn’t be the basis of policy.
Addressing this point:
> Under an LVT my landlord would be required to run the property in the most taxation efficient manner, which is counter to my interests as a renter.
Even granting that that’s true, I’d argue it’s not persuasive. The government needs some amount of money to function. LVT is one source of that money, income taxes are another, sales taxes are another, wealth taxes are another, etc.
So your argument fundamentally resolves down to “other members of society should make up the deficit in taxes I would otherwise pay so that I (and others in my situation) can enjoy a yard or more space than I otherwise would.”
And the basic question here is, why? In what way does it benefit literally anyone else in society that you have a bigger yard? This is a blunt and perhaps impolite way to put it, but it’s true.
Going back to those alternatives, we can counterfactually raise income taxes on some waiter bussing tables or a SWE slinging code at Facebook, on an author with a copyright, or on someone who owns a business. But, if we do, we should expect less of all of those services. That serves as a reason to avoid such a tax.
In contrast, with the yard, I can’t think of a single such service provided or reason to avoid the tax. And that’s the crux of the Georgist argument more than railroads or slumlords. It’s the empty lot, or the lawn as we now call it.
I don’t think so, actually. Real estate is a pretty small sector of the economy (maybe 13 or 14% of GDP according to Google. That’s about as much as manufacturing, but not politically unassailable.
The real reason these sorts of reforms will never kick in is that roughly 2/3 of Americans are in owner occupied housing, it’s the largest asset on most of their balance sheets, and an LVT will in many cases effectively zero that out.
So it’s the homeowners (particularly the older cohorts) which will vote against this policy to the detriment of the younger cohort.
> Taxing land will be passed through 100% to the renter
Replies like this genuinely confuse me. How do you think rent prices are set now? I’ll tell you, they’re generally set to maintain a given occupancy rate, which is to say, they’re set as high as the market allows. The market being a group of renters which make an income, of which landlords generally take a third or more.
If we implemented a LVT tomorrow, the renters don’t get additional capacity to pay rent as mana from heaven. The rents wouldn’t budge.
Any claim otherwise requires it be the case that there’s capacity to raise rents that landlords aren’t currently utilizing, i.e. that landlords are undercharging renters en masse. I have never seen evidence in support of such a claim.