Owners Keep Zombie Malls Alive Even When Towns Want to Pull the Plug(wsj.com)
wsj.com
Owners Keep Zombie Malls Alive Even When Towns Want to Pull the Plug
https://www.wsj.com/real-estate/commercial/malls-real-estate-shopping-24c3d7fd
42 comments
Wow, another problem that the Land Value Tax solves
I prefer the variant where nobody owns land-- the local government can lease it out on a term basis. Homes might be leased on a long term-- 10-20-100 years, but commercial land should be on 5 years or less.
This gives the local government an opportunity to identify properties that are going into decline and intervene quickly. It also creates an incentive for developers. Any money they put into improvements disappears if they don't meet a minimum anti-blight standard for lease renewal.
My city spent decades playing chicken with the owners of a dead strip mall. This wasn't even "dead" as in "down to a Spirit Halloween and seven smoke shops", it was "fully fenced off and crumbling." This was a decent location-- right opposite a major mall (when they first boarded things up, but finally closed around 2020), 2km from a freeway, 2km from a community college, but the buildings were circa 1979, and the owners really wanted to get the local government to pay part of the cost to renovate it.
Since there was no "normal process" way to regain control of the situation, there were just years of simmering squabbling and occasional legal nastiness, that ended with the city handing out some tax incentive, and suddenly the blight was knocked over for fancy condos inside of 6 months.
Now imagine if that property had been leased from the city. The mall owners close the doors in 1996 or whatever. By 2001, the lease would have expired, and the city could either say "you let it rot, no renewal", retaining an asset with only a few years of decline to repair, or the lessee would have to present-- and deliver-- a compelling refurbishment plan if they expected to keep the lease.
This gives the local government an opportunity to identify properties that are going into decline and intervene quickly. It also creates an incentive for developers. Any money they put into improvements disappears if they don't meet a minimum anti-blight standard for lease renewal.
My city spent decades playing chicken with the owners of a dead strip mall. This wasn't even "dead" as in "down to a Spirit Halloween and seven smoke shops", it was "fully fenced off and crumbling." This was a decent location-- right opposite a major mall (when they first boarded things up, but finally closed around 2020), 2km from a freeway, 2km from a community college, but the buildings were circa 1979, and the owners really wanted to get the local government to pay part of the cost to renovate it.
Since there was no "normal process" way to regain control of the situation, there were just years of simmering squabbling and occasional legal nastiness, that ended with the city handing out some tax incentive, and suddenly the blight was knocked over for fancy condos inside of 6 months.
Now imagine if that property had been leased from the city. The mall owners close the doors in 1996 or whatever. By 2001, the lease would have expired, and the city could either say "you let it rot, no renewal", retaining an asset with only a few years of decline to repair, or the lessee would have to present-- and deliver-- a compelling refurbishment plan if they expected to keep the lease.
The reason this is not done is for the same reason HOA's are nightmares. It's a conflict of interest to committee others private property. Government becomes incentivized to look for and generate infractions. If you are wondering why politics never truly changes it's because gov power actively suppresses competition.
> I prefer the variant where nobody owns land-- the local government can lease it out
That means the government de facto owns all land.
That means the government de facto owns all land.
> That means the government de facto owns all land.
Do they not already? Try not paying your property taxes. Do it long enough and they'll take back 'your' land.
Do they not already? Try not paying your property taxes. Do it long enough and they'll take back 'your' land.
I would expect the same democratic processes which keep the tax rate below 100% and balance zoning restrictions to limit the downsides there, and that’s more of an option than we’re seeing in areas where private equity funds have been buying up enough land to shift the market in their favor.
Demolition costs can be very expensive. You don't want that to be taxpayer responsibility.
How does a LVT solve this? If anything, with property taxes, the owners should be incentivized to destroy their mall to pay less taxes. With LVT, they would pay the same tax whether or not the mall still stands. This assumes, of course, the mall has positive value (for tax purposes)
The idea is for the LVT to be high enough to make this behavior infeasible.
So yes, they’d pay the same tax rate, but that rate is high enough that it’d be prohibitively expensive to keep it in its current state for very long. They’d have to either turn it into something useful for the community (bring in more businesses or allow people to live there), or sell it to someone who will.
So yes, they’d pay the same tax rate, but that rate is high enough that it’d be prohibitively expensive to keep it in its current state for very long. They’d have to either turn it into something useful for the community (bring in more businesses or allow people to live there), or sell it to someone who will.
I was under the impression that LVT was not without concerns, but when I looked it up again to find such issues I didn't seen anything that was all that worrying.
So yes, this would be a perfect application of a LVT.
So yes, this would be a perfect application of a LVT.
Well… except that a land value tax would only make home affordability far worse than it already is.
It would make it better, because a property tax punishes improving your property and a land value tax doesn't, so it would make it easier to build apartments where the land value is high and reduce competition for houses where it isn't.
Haven't read the whole LVT thing too deeply but wouldn't it make single households a time bomb? Say I buy a house on the suburbs of a city, 20 years later the city has grown to the point that I'm no longer part of the suburb but inside the city, which means that my taxes would skyrocket because I have an "underdevelop" lot, even though, as a single individual, I don't have the capital to build a higher density complex to cope with the higher taxes
I think that's the point. If you live in a high cost of living area you would sell your house and it would be replaced with multi unit housing that would bring down the local cost of living
But that already happens with property taxes - just look at all the people in California who can only afford to live where they do because their property taxes are fixed at their original rate, and so they cannot afford to move anywhere else within the same area.
The best approach there isn't to lower taxes (although a deduction for a primary household is fine of course) but to allow them to defer payment until it's sold/they die. Since in this situation their house is also worth several million dollars.
Which then significantly exacerbates the potential for a negative equity trap, because moving now requires paying all of those deferred taxes. So the longer you've lived somewhere the more you need to down-value when you move...
I think that's the point. If you live in a high cost of living area you would sell your house and it would be replaced with multi unit housing that would bring down the local cost of living
Yes but that means your home is now worth a fortune and you can sell it for a windfall.
You’re making the assumption that the current property tax would end and be replaced. Unless this was all done at the county level, that most likely wouldn’t happen. Even then, many jurisdictions would just double tax. They’d argue that one tax was for land and the other for the dwelling. For the poor who lived in an area that was once cheap, they’d simply lose their homes if they haven’t already as they’d be unable to pay these taxes.
I don't think anyone has ever wanted both a land and building value tax.
Well, there are wealth tax proponents but I don't believe in those - land taxes are the only good kind of them.
Well, there are wealth tax proponents but I don't believe in those - land taxes are the only good kind of them.
No it wouldn't. Homes generally pay less tax. The biggest tax increases by far fall on parking lots. LVT improves home affordability.
True. We should do the opposite and eliminate property taxes on primary residences.
Bye, schools
Stop relying on local property taxes to fund the schools. That’s a US thing that isn’t replicated in most other well-off countries.
The closest thing Germany has to US-style annually-billed property tax is Grundsteuer, and for homeowners, it’s low triple digits at most. It pays for neighborhood streets, sidewalks, storm drains, and (I think) the fire department. We do pay a pretty hefty transfer tax when we buy property - I think it was about 5% of the purchase price, but that’s a one-time thing.
Schools are funded out of general revenues, mostly personal and corporate income taxes, assessed nationally. Each state has its own school system, with differing structures and standards.
The closest thing Germany has to US-style annually-billed property tax is Grundsteuer, and for homeowners, it’s low triple digits at most. It pays for neighborhood streets, sidewalks, storm drains, and (I think) the fire department. We do pay a pretty hefty transfer tax when we buy property - I think it was about 5% of the purchase price, but that’s a one-time thing.
Schools are funded out of general revenues, mostly personal and corporate income taxes, assessed nationally. Each state has its own school system, with differing structures and standards.
What’s more, funding schools from local property taxes keeps the good schools in the rich communities and the bad schools in the poor communities. It prevents equality of opportunity. It is cynical, mean-spirited, and appalling.
This is true, having split kids between two districts I've seen this first hand.
Funding from state would equalize it, and the rich communities can do their gilding via the PTA. I'd much rather have that then them pulled out of public education entirely.
Funding from state would equalize it, and the rich communities can do their gilding via the PTA. I'd much rather have that then them pulled out of public education entirely.
Hefty is relative.... In British Columbia (Canada) transfer tax is 10%.
I live in Australia. Here, there are no school districts, and local government has nothing to do with public schools - they are all state-run and funded out of the state government budget. The state government does rely in part on property taxes, but also has other revenue sources, so abolishing property tax wouldn’t have any direct impact on education funding here. I don’t see any inherent reason why a US state couldn’t adopt the same public education model.
I’m 100% in favor of recouping the money via other taxes. My motivation for being against property tax on primary residences is my belief that if you own a single family home free and clear, no one should be able to take it away from you simply because you don’t have any money.
If you don't have any money, how will you pay for local government services like police, fire, roads, etc?
If you have a house but no money, I don’t think the government should take and sell your house to pay for those services. And if they did, you’d probably cause the government to incur more costs providing for you as a homeless person than it would have earned from your property tax.
Sure, why not. American public schools are terrible self-protecting bureaucratic monstrosities. I would be fine with scrapping their funding and reworking the whole system.
https://archive.is/SIe26 (but I was able to view the article directly on WSJ by closing the popup)
Reading the article, it’s clear this is about a very specialized sort of parasitic buyer looking to reap the residual value from final decline. It’s hard to generalize from this to, “Yay current hot LVT thing!”
It's embarrassing when it's your home town, and everywhere else in that area is becoming nicer and more gentrified.
All the more incentive to hang onto the failing mall: the land underneath it continues to grow in value while the owners put in no work and hardly any taxes! No wonder it’s one of their portfolio’s stars.
Eminent domain? Sounds like the perfect use to force demolition and redevelopment. Perhaps it’s just a matter of putting the resources together to legally fight the mall owner until you exceed their economic pain tolerance for litigation.
A land value tax is ideal, but that will take substantial time to work towards. You can get this done today.
https://en.wikipedia.org/wiki/Kelo_v._City_of_New_London (“Wikipedia: Kelo v. City of New London“)
(I was not a fan of this SCOTUS outcome for obvious property rights reasons, but it seems ideal for use against the capital investment opportunists described in this piece)
A land value tax is ideal, but that will take substantial time to work towards. You can get this done today.
https://en.wikipedia.org/wiki/Kelo_v._City_of_New_London (“Wikipedia: Kelo v. City of New London“)
(I was not a fan of this SCOTUS outcome for obvious property rights reasons, but it seems ideal for use against the capital investment opportunists described in this piece)
> Perhaps it’s just a matter of putting the resources together to legally fight the mall owner until you exceed their economic pain tolerance for litigation.
The problem is certain companies would fight it to death.
The problem is certain companies would fight it to death.
As they should. Even in situations where it should be applied, the burden of proof should be exceptionally high.
this just keeps going into a captcha loop for me, tried multiple browsers; anyone else?