If only so many people didn't treat land and houses like investments, there wouldn't be such a disastrous hoarding problem. Henry George's Land Value Tax [1][2] seems like an obvious economic fix that would require a large fraction of the population to change how they think about land and natural resources, but most of them are invested in such a way (i.e. owning multiple houses on multiple parcels of land, often without renting anything out) that it is in their economic self-interest to block any such proposals. Although, I suppose this situation isn't unique. The world has long been doomed by coordination problems.
I’ve ranted about this before but CA Prop 13 not only makes housing a good investment, but one that you’re extremely incentivized to hold onto forever and never move. Two people can be living in houses next to each other valued around 1.5m, and one of them will be paying 1/10th the tax. If anyone wants to buy a house, they have to first be able to afford the property, so the barriers to entry are so much higher for those who didn’t have the foresight to purchase a home 40 years ago.
> I’ve ranted about this before but CA Prop 13 not only makes housing a good investment, but one that you’re extremely incentivized to hold onto forever and never move.
Not “never move”, just never sell. When you are ready and able to upgrade to a new home, you convert the existing one to a rental property with rents to cover costs with a suitable risk premium (but don’t worry about additional profit), and then benefit from the appreciation and protection from full-value reassessment on both properties, rinse and repeat as needed.
Prop 13 is so ridiculously unfair and distortionary. I wonder is there a way to legally challenge Prop 13 on the basis that it confers a kind of durational residency benefit (see Shapiro v. Thompson)?
Prop 13, especially the extensions that preserve tax rates through bloodlines, disparately impacts minorities even though that wasn't the explicit intent of the law. Turns out that intent doesn't matter on issues of race so there's legal precedent to overturn the law.
I agree with Justice Stevens that it's a violation of equal protection, and the state supreme court of Delaware recently did to when they struck down their version of Prop 13, but as you'll see in my Cornell link above the rest of the court upheld the law.
40 years ago a home in the Bay Area cost about 3x median income. Now it is more than 10x. Buyers in 1981 benefitted enormously from high interest rates. I know they whine about it now, but objectively it was a massive windfall for buyers.
It was a wealth grab. They're the ones that voted for prop 13, and they're the ones benefitting. Meanwhile it's the Millennials and all subsequent generations that are stuck paying for their social security.
> 40 years ago a home in the Bay Area cost about 3x median income. Now it is more than 10x.
Interest rated have fallen 10x
> Buyers in 1981 benefitted enormously from high interest rates.
They didn’t benefit from paying more for a money loan. They benefited from being able to refinance on always lower rates, and the corresponding rise in asset price
You’re saying that old people should be driven out of their houses because younger, richer people deserve to live in their houses. I’m sure your feelings will change as you get older.
This was a red herring when prop 13 was passed, and is a red herring now. 49 other states don't have prop 13, and yet seniors aren't priced out of their homes.
There are plenty of other solutions. Some states allow you to just pay the same amount each year and put the difference as a lien on the house until you sell. Some states have something like prop 13, but it is applied to entire counties. ie. They allow the entire county to raise their income from property tax by 1% annually. So everyone's home gets reassessed for its value and then the tax rate is set so that the whole county goes up 1%. This means that in some cases people's property taxes actually go down if one area had a massive increase in value.
Every other state figured out a way to avoid this problem. California just loves its "rent control for the wealthy" which is what Prop 13 is.
Prop 13 is the single worst law in California and must go.
And I say this as someone who owns multiple properties in CA, and in fact for one of them, the profit comes entirely from the fact that the tax rate was set in the 70s. If I had to pay property tax on the current value, I'd just sell it because there would be no profit to be had. And in my primary home, my neighbors subsidize me by paying twice what I do even though their homes are worth less. And I subsidize my neighbor who has been here since the 60s and pays 1/10 of what I do for the same services.
And if you're still really concerned about old people losing their homes, at least support getting rid of Prop 13 for all non-primary homes. There is absolutely no reason a rental property should be protected from property tax increases.
> This was a red herring when prop 13 was passed, and is a red herring now. 49 other states don't have prop 13, and yet seniors aren't priced out of their homes.
Prop 13 is bad in at least half a dozen ways, but I'm not so sure this problem isn't coming elsewhere or even is absent. It seems to me California may have experienced a leading edge of metro dynamics that are going to come for other states soon.
> everyone's home gets reassessed for its value and then the tax rate is set so that the whole county goes up 1%.
That's interesting.
> And if you're still really concerned about old people losing their homes, at least support getting rid of Prop 13 for all non-primary homes
I think something like this is right (and wasn't this attempted by proposition a few years ago?). Residence-first real estate policy needs to include tax that increases on the number of properties owned (and maybe even more steeply in a supply constrained market).
> and wasn't this attempted by proposition a few years ago?
Yes, in the last election. And sadly it was defeated because as usual with state propositions, the side with the most money (developers in this case) were able to convince the public with inaccurate propaganda.
> I think something like this is right (and wasn't this attempted by proposition a few years ago?).
No, a much more limited reform that would have effected some, but not all, commercial and industrial property (but not any, even non-primary, residential) was, and was defeated.
> Residence-first real estate policy needs to include tax that increases on the number of properties owned (and maybe even more steeply in a supply constrained market).
People might try to get around this by forming corporations or trusts that hold max one property each. There is really no need to count how many other properties someone holds. Just do a re-assessment every year and ratchet up the assessed value on all housing that the owner does not occupy, including vacant property and renter-occupied. Seems a lot simpler.
It's pretty easy for the taxman to detect such shenanigans. There are a bunch of corporate laws that only apply when certain limits are met, like minimum revenue or 50 employees, etc. It's illegal to form extra corporations to get around those rules, and the regulators usually catch on.
I'd be especially easy in California because every foreign (out of state) corporation has to register with the state and tell them who the beneficial owners are. It would be fairly easy to trace it back to actual people.
I own a house in East Bay, and paying >$10k/yr of property tax. While I don't mind tax in principle, it greatly annoys me that I'm paying much more than my neighbors just because I bought it a few years ago.
And why would my opinion change when I get older? Prop 13 won't do shit to lower my taxes, I'll have less income and still be paying through the nose, because the city needs money and half of its residents are paying virtually nothing. If anything, I'll be even crankier about the whole situation.
> And why would my opinion change when I get older? Prop 13 won't do shit to lower my taxes
It will, in real terms, since the assessment increase limit is the lower of 2% or the rate of inflation each year, guaranteeing that over the long term the assessed value and tax go down in real terms.
Which isn’t to say your opinion should change, just that the self-interest equation does.
That's BS. If I pay $10k in property taxes(excl school taxes), that means I cannot invest that money into something more tangible. Thus depriving me of working investments to subsidize wealthier individuals is worse, than steadily increasing taxes.
That taxes compete with other potential uses of money is obviously true, and equally obviously irrelevant to the discussion of whether Prop 13 will or will not lower your real tax bill over the time you own a home.
That's the problem. Prop13 makes your taxes high upfront, with lower taxes later on. This is counter intuitive, when you want to encourage people to buy homes.
> Prop13 makes your taxes high upfront, with lower taxes later on
No, Prop 13’s rate limit makee your taxes low upfront — the 1% cap on nominal rates is far below the national median effective rate, and the nominal rate is before applying the effects of the assessment limits — and the limit on annual assessment increases to the lower of inflation or 2% makes it even lower later on.
A lot of people focus on the second in isolation to say new home buyers subsidize existing owners in CA, but really both types of owners are subsidized by income and sales tax payers, its just new homeowners are slightly less subsidized.
> This is counter intuitive, when you want to encourage people to buy homes.
“Barely taxed now, and even less taxed later” does a very good job of encouraging people to want to buy homes in California, and also of discouraging them from wanting to sell homes in California, as evidenced by price trends.
What it doesn't do is make homes affordable to buy, but then encouraging people to want to buy and making them affordable are goals that are inherently in some tension, given the effect of demand on price.
>why would my opinion change when I get older?
Your opinion might change if property price around East Bay continue to appreciate and your new neighbors are paying even more.
That may have been the case when Prop 13 was sold to the public, but at this point it's mostly being used to accumulate wealth, not keep people on fixed incomes in their lifelong homes. If that was the goal, there is a much better solution - let the elderly accumulate the tax bill against the value of the house, and collect from the estate when they pass.
Meanwhile, in many neighborhoods, the older, wealthy, established residents are paying 1/3rd the taxes needed to support infrastructure and services, compared to newer, younger residents who are trying to establish a nest-egg and raise families without the benefits the older generations had. There is no one solution that will work for every neighborhood, but prop 13 is economic warfare on the young. Portraying it as young tech millionaires against poor, old retirees is not true for a large portion of those affected here in the present.
Citation otherwise this is just your biased anecdote.
There’s plenty of turnover in California on par with other states. If prop 13 were somehow so powerful a factor not to sell, you would see a lot less house sales which you don’t.
In my city, half the houses were sold in the last 20 years which sounds pretty good to me. The idea that property taxes are frozen to 30 years ago and governments are starving for money is fiction.
In places like Toronto where property taxes get assessed every year, the property taxes 1/3 for an equivalent house price.
I think this is something that is really under appreciated. When there is inherited property, the cost-basis is reset to when the parents died and the Prop 13 basis is also inherited now if it becomes their primary residence. This is a huge advantage for those people who happen into this sort of situation.
> You’re saying that old people should be driven out of their houses because younger, richer people deserve to live in their houses.
Believing that tax bills should be equal doesn't imply that; one can believe in equal taxation of same-value property and not think that property tax should ever force people out of property they own. Deferrable-by-default property tax (either entirely or increases above base year) are better than assessment increase limits at avoiding people being forced out, but do less to transfer wealth up the to already-wealthy elites.
Some of my neighbors are seniors who are on social security. Their houses were bought for about $160k in the 1970s. Which is expensive back then. Now they are worth $2M but they have no intention to move. Where would they live? And how can they afford the $30k/yr property tax?
What stops people from selling their homes isn’t prop 13, it’s the ridiculous rise in house prices in the last 15 years. It creates no mobility. Stop bitching about Prop 13, that is a lazy and short sighted and wrong explanation for house prices. Look at the inventory these days. It’s low because no one wants to sell their homes because where are they going to move to?
You misunderstand - the whole point of the scheme is they don't have to pay the property tax. It gets (partially or entirely) accumulated in a lien against the house, and the seniors stay as long as they want.
When they choose to sell, or their estate sells, the property tax is settled first from the proceeds of the sale.
I'm saying this scheme is in place in other locations to address the same problem you describe, and seems to be working better than prop 13 (at solving that).
Where would they live? With a budget of 2 million dollars- they could own an extravagant home practically anywhere in the US while pocketing hundreds of thousands of dollars.
I have no idea why people who are living off of social security should be in the most desirable housing in the entire country
Why should they get services, that are paid by people with no money?
Also - they wouldn't be paying $30k per year. If you had a rational government cost distribution among people in the area, you wouldn't need to charge people $30k just in property taxes.
And then - they also haven't paid their fair share of taxes in decades, so why do they get to be in a highly privileged position?
Imagine if I didn't pay any income tax for 50 years - would you excuse me, if I turned 60?
Nobody is forced to do anything. They can certainly leverage their significant equity in the home to pay those taxes, they can take a lien like many other states allow for in these situations, etc.
But frankly I don't understand why a retiree who is living off of social security would sit on a multi million dollar asset, rather than cashing out and increasing their standard of living many times over by moving. And I don't think they are a victim by having generated 10-20x returns on their home
The law should take into consideration those cases and not charge them $30k/yr in cash for property taxes if they don't have the money in cash to pay it. One solution mentioned elsewhere is a lien against the inflation-adjusted value appreciation of the house.
The solution isn't to let wealthy older homeowners get away with not paying proper property taxes though, which is how it is now.
> And how can they afford the $30k/yr property tax?
The suggestion is to make them no pay that annually in cash, but rather on the future gains of the house.
Their house (or rather, the land) is going up in value far more than that per year. Asking them to forgo a fraction of their speculative real estate gains, when they never even plan to access it (according to you), does not make sense.
So what it seems like you are really saying is that they deserve to have full speculative real estate gains accessible to them, just because they are wealthier than younger people and were able to get into the capitalism game earlier. That due to their unearned wealth, that they did nothing to create, that comes purely at the expense of others being able to live in the area because land is zero sum. They should have to pay less just because they have greater power? Absolutely not.
Saying "I'm so wealthy that I can't pay taxes, and I'm not willing to even delay paying taxes until sale" is fundamental wrong-headed.
> You’re saying that old people should be driven out of their houses because younger, richer people deserve to live in their houses. I’m sure your feelings will change as you get older.
Or maybe, make it so that property tax increases are limited but only if the owner:
1. Is past retirement age
2. The owner lives in the property.
3. The owner does not have the means to pay the normal property tax rates.
This is how most other States' solve this problem. Instead of freezing property tax rates across the board, they narrowly limit property taxes of old residents that don't have the means to pay the normal property tax rate.
What you're suggesting is that the solution to the problem should be targeted at the actual problem trying to be solved.
Seems like a lot to ask, so clearly the best way forward is to just continue shoveling more wealth onto the already-wealthy at the expense of people entering the workforce and housing market, and even then still not actually solving the original problem we sought out to solve in the first place.
the California Tax Postponment Program protects low income seniors and the disabled. They have 0 risk of being displaced by property taxes no matter what.
Or working class people. For a large fraction of people if their taxes are going up faster than their wages are going up they do not have a reasonable way to get higher wages to pay for the tax.
There is very little controversy over not taxing unrealized gains when it comes to income tax [1]. I'm not sure why doing the same thing for unrealized gains in property value is controversial.
It's not like most of the things property taxes pay for are proportional to the value of the property. The changes each year in costs to provide roads, schools, libraries, police and fire, and utilities to my house and my neighbor's houses generally has little to do with the changes in the market value of our homes. So why should the taxes that pay those things be tied to market value of the house?
More sensible would be to take the costs to provide the services the tax pays for, and divide it among the houses that receive the services, equally or taking into account usage (e.g., the amount for sewer might be proportional to the number of bedrooms). If we want it to be a progressive tax, apportion it according to the relative market values of the properties, but determine the total amount for the neighborhood solely by how much money the tax needs to raise to provide the services used by that neighborhood.
[1] There is controversy over tricks and schemes used to effectively realize them while escaping taxation.
> It's not like most of the things property taxes pay for are proportional to the value of the property
Exactly! The extraordinary taxes on property are a result of unfair distribution of cost of services. A city needs to collect for a budget of $X... so they distribute the costs the best they can.
You don't get a refund for the intervening years of mania. Oh we're sorry we almost kicked you out of your house because everyone else was paying out the nose for houses because they speculated Amazon would build it's hq there that year so sorry about that. Here's your 50k in taxes back with interest.
In that scenario it sounds like the person "forced out" would have received a huge windfall of cash, and could ostensibly buy their same house back for much less than they sold it for at the height of the mania.
> the person "forced out" would have received a huge windfall of cash, and could ostensibly buy their same house back
Don't assume. That person had to live somewhere, possibly at equally inflated prices. Now add in the the cost of two unnecessary moves.
> and if you sucked it up and paid the state? Maybe you had a sick family member that you were taking care of and the chaos of a move would have been too much to deal with. Sorry, chum. Bad luck of the draw.
What has happened (at least in my locality) is in years of high assessment increases they cut the rates so the increase is buffered. They typically don't set the tax rate until they see how the initial assessments are coming in.
The other program some counties around here do is property tax exclusion for low income seniors.
Prop 13 is a limits how much property tax can increase in a year. So hypothetically without prop 13 it would possible that the value of your house jumps 10x and then you're stuck with paying 10x the amount of property tax that year.
I don't think we need to remove it completely but some adjustments like applicable only to a primary residence and not investment or commercial properties would probably go a long way.
I'm planning on living in my house for a very long time, it's my home, not an investment. I don't want my home value going up 10x unless I'm planning on selling it. In this market, I couldn't replace my house if I sold it anyway.
If the value then drops 10x, you won’t get your property tax refunded. If prices end up going up and down like bitcoin, you’d need to have some protection.
> If the value then drops 10x, you won’t get your property tax refunded.
That's right. And why would it?
But also: your example is imaginary. When was the last time that house values dropped 10x or even 5x? It's counterproductive to make tax policy based on the extreme cases that have never happened.
In a lot of places, if not most, property taxes are based on the assessed "current market value" of your house and audited annually, which can change a lot from year to year. Property taxes are paid annually, not when the house sells. If the house goes up 10x in a year, the property tax also rises which makes it very hard on a fixed income when you're retired, especially when the gov't artificially calculates inflation at a lower rate so they don't have to pay as much in social security benefits to those seniors reducing their purchasing power over time.
And the fact property taxes are often used as a slush fund makes those of us paying attention very sensitive to their increase. With those taxes comes bureaucratic power and control, often leading to more taxes and less of a say over how one lives one's life.
> Someone who owns a house in cali is a milionaire
I own a house in California. I have substantially less than $1 million net worth. Not complaining, to be sure, but it simply isn't even remotely true that all California homeowners are millionaires.
The old person would have sold the house a long time ago because of the rise of their property tax. They wouldn’t be millionaires. They would have to sell their home for a small gain and then rent for the rest of their lives. And since they are old they have no income so they need to keep moving to cheaper and cheaper apartments.
Sounds like a great way to live a life, just because younger people feel like they deserve to live in their house.
> Sounds like a great way to live a life, just because younger people feel like they deserve to live in their house.
At one point, I'm fairly sure all those old people you're talking about were young people who felt like they deserved to live in their house. The difference is that, well, they were able to. I don't think you're intentionally saying "You came of age after 1980, kiddo, so suck it," but that's nonetheless the outcome. Proposition 13 certainly isn't the only reason that housing prices in California have skyrocketed, and housing prices have always been more expensive here than the US median -- but the gap between the California median and the US median started increasing immediately after Proposition 13 was passed and just kept accelerating.
If their property taxes increased to the point where they cannot afford it, then that means that their property value increased significantly. Excuse me if I don't feel too bad for somebody who just reaped a massive windfall.
The "won't somebody think of granny?" argument doesn't really work when advocating for a policy that disproportionately subsidizes non-grannies.
“Reaped a massive windfall” if and only if they sell their house. The problem is unless they’re both looking to sell and move into a lower COL area, that doesn’t do them much good.
My house today is worth 2x what I paid for it a decade ago. Which is great except for the fact that housing costs around here are closer to 3-4x what they were a decade ago. Even if I wanted to sell, I couldn’t find any livable housing for the same price within the same area.
> just because younger people feel like they deserve to live in their house.
Well, they do deserve those houses. If we expect young people to work, pay taxes and raise new generation. This is yet another middle finger to young people. No wonder birth rate is in toilet.
> Everybody works but the vacant lot. I paid $3600 for this lot and will hold 'till I get $6000. The profit is unearned increment made possible by the presence of this community and enterprise of its people. I take the profit without earning it. for the remedy read Henry George.
- Billboard posted in an empty lot, Rockford Illinois, 1914
That's a common meme - that asset appreciation is unearned wealth.
But it's not.
That investor could've spent the 3600 on hookers and blackjack.
Investors freezing their money in communities in the form of real estate or other investment is a key part of those communites becoming richer and more complex.
There's a real risk of losing your money - there's no worse financial nightmare than holding real estate that you're trying to sell for years... but no-one is buying
Speculative investment without asset improvements like that is the worst kind, but it still serves to stabilize prices for other investors. At worst, the speculator loses their shirt and a more capable capital allocator gets to work with the money.
I'm sure we can agree the vacant lot never improved itself.
It's not unearned -- it's earned by the surrounding community improving things -- which make that lot more attractive.
The incentives don't align. If that community was to massively regress e.g. unfavorable rezoning -- the value of that lot would plummet.
However in this case it's likely to be partially addressed by paying land value taxes which disincentivizes leaving it vacant -- what Henry George was getting at and wasn't there at the time.
I agree that we need to stop treating houses as investments, because they're a basic fundamental need everyone has.
IMO, the problem could be fixed by having stricter laws prohibiting people who aren't residents from owning homes in another country. The requirement to become a resident is only to live in a country for over 6 months out of the year. Before that, you can just rent. We could also do things like limit the number of houses a person can own, and tax every house sale based on capital gains (even primary residences).
However, another problem we have is that interest rates are too low, and there isn't enough construction. Those are harder problems to solve. I really think we should build more, but we'd need denser construction as well. What do you do if you need land to build and there's already a house there, or someone already owns the land? Maybe it's kind of silly to have this idea that a person can "own" a piece of this planet we all live on, but we probably don't want to live in a communist country where the government owns every home and everyone is renting either.
As for interest rates, this is driven by our current economic policy and money printing. Maybe there's a way to somehow detach the interest rate used for mortgages from that in other areas. Surely, the government could print stimulus money and direct it where it's needed without interest rates being artificially controlled? The main problem with these near-zero interest rates is that they completely kill the free market. We keep zombie companies alive and we allow people to speculate on home prices endlessly. That's not natural. In a "true" free market, there's a natural equilibrium between offer and demand, both home prices and rents will fluctuate but they will balance out. My ex's parents bought a home in the 1970s, they only had high school education and were both making minimum wage. Said home is now worth over a million and out of reach of anyone not making 200K+ household income.
Something like this would effectively bar any person born in India who tried to immigrate to the U.S. in the last ~5 years from ever buying a house, unless they got married to a citizen. Broad strokes, I agree that residency requirements might help with reducing speculative investment, but maybe phrased in terms of how long you're in the country, not literally permanent residency as a legal threshold.
Yes I agree, I meant residency requirement, requiring that people live in a country for at least 6 months before buying a house, which could be done on a work or student visa.
Not necessarily - for example in China foreigners are limited to owning one house. That limits speculation but does not provide hindrance for someone honestly trying to live.
In general, of course not, but GP originally proposed specifically forbidding non-permanent residents from buying houses. How is that not hurting immigrants?
Agreed that the policy doesn't have to be binary, but GP's original phrasing was literally "ban non-permanent residents from buying property," which is what I was responding to.
Not everyone wants to own the place they live in. Lots of people plan on only being in a location for a year or two or four, and would rather just rent.
Some people would just rather rent indefinitely.
The problem is free handouts for homeowners in general.
The handouts entice the landlords, because for the last 30 years with the exception of 3 years (2005-2008) - housing on leverage has absolutely destroyed equities as an investment.
If you got rid of the handouts, this wouldn't be the case. Then you wouldn't have people like Blackrock gobbling up houses. They'd just be buying equities (the things that are supposed to be investments?) instead.
Maybe? They are a luxury for the upper middle class, and you could easily rent one the same way you rent an airbnb. Those holiday homes do need to belong to someone though, so I suppose it makes no sense to outright ban own multiple homes, but we could structure it so that resale is more highly taxed, particularly resale after a short time (i.e. people "flipping" properties).
Ok...we need more houses so tax the hell out of developers?!
You need people to be able to build and flip properties without being taxed at all. The current taxes are carving a modest profit down to "not worth it" for a lot of people who could otherwise build and revitalize affordable housing.
More taxes on home sales results in less homes for sale.
IMO we should probably reduce taxes on house builders. Maybe even give them tax exemptions. Do what we can to increase supply.
Speculators wanting to buy a house, redo the kitchen, and mark up the price 20% 6 months later though? We could just let older, unrenovated houses be cheap. That opens up deals to new home buyers. You can redo the kitchen after buying the house if you really care. You don't need some middle man to do it and mark up the house.
Lots of people want to buy a move-in-ready house. Many don’t know much about construction, don’t know which end of a hammer to hold, can’t afford to have a house sit idle for 3 months while a renovation happens, and want to have the “Apple” experience for one or two hundred a month more in their mortgage payment.
That’s the service flippers provide, IMO. (I’m not one but I think they’re more helpful than not in terms of providing housing that owner-occupants want.)
There's flippers who truly restore a dilapidated house and help resuscitate a neighborhood, and there are flippers who put a thin veneer of newness on a rotting frame, bury the waste in the backyard, and then still try to charge the same as the first kind. We don't need more of the second kind.
Is that how it works in Singapore? I know in China you lease land from the government for 50 or 100 years. I do think it's important to be open to ideas, and I think there probably ought to be redistribution of wealth, particularly when it comes to land ownership. That has to be balanced with some minimum set of rights so that people can't be randomly evicted because people in power want that land, and that when people are evicted, they receive fair compensation.
It's not so different than how the US operates, except the lease is called a deed and it's term is indefinite. The government can still take "your" land away if you stop paying taxes or they need it for something else.
I recently went down the Geoist/LVT rabbit-hole myself. It strikes me as uniquely appealing across the political spectrum, since it reduces tax on wealth-creation AND redistributes wealth from the rich to the poor.
Sadly, this very fact provokes enough superficial resistance to keep it out of the Overton window. Whenever it comes up, shouters on either side have plenty of ammo to blast it, saying things to the effect of "how could you propose giving the other side what they want!?!"
It's never appealing to make a long time member of a community leave because they can no longer afford the land they've owned for years, because other people say "I want that"
I move to a cheap, small town. I embed myself in the community and help build it up over decades. And then, at the peak popularity, in part due to my presence, I am forced out, because someone who has never been here says that they would like to live here.
> I move to a cheap, small town. I embed myself in the community and help build it up over decades. And then, at the peak popularity, in part due to my presence, I am forced out, because someone who has never been here says that they would like to live here.
Why would you be forced out? Yes, taxes on the underlying land would increase because it is more valuable, but you would be able to move into a new property in the same community, as housing would increase in density. Now if you don't want to live in a denser community, that's fine, but you don't really have a right to prevent the densification.
It sounds to me like GP’s concern is that their LVT would go up (across the entire town) due to popularity and become unaffordable (forcing them out economically), rather than being concerned with increasing density.
So I would need to sell the 2 BR single family home I've lived in for 30 years, and move to some other part of town to live in a 1BR apartment, because someone from some other part of the country can pay more in tax for the property I've lived on?
And then, at the peak popularity, in part due to my presence, I am forced out, because someone who has never been here says that they would like to live here.
This is exactly what is happening in parts of Utah. Planners accounted for natural growth and a standard rate of in-migration, but there has been a flood of people from out of state forcing out the locals who made these places what they are by living in them for decades.
It may be in some areas, not in others - depending on how their tax system works. Prop 13(which has massive flaws and abuses) in CA is an example, as well as states which just generally have low property tax rates because they derive their revenue from other sources like income tax.
Most proposals in this direction (e.g. Glen Weyl's "Radical Markets", [1]) make reasonable exemptions for basic personal needs, so people don't get thrown out of their (modest) homes or lose their personal belongings unexpectedly. The point isn't to kick you out of your village, it's to make speculative investments in real estate unattractive.
You don't think geoism is just naive? This idea that the state can magically assign a value to property and not have it go sideways for the politically disenfranchised (the poor) is pure fantasy. If you haven't gone through the process of buying a house. I suggest trying it (especially during a frothy market), and each step of the way stop and think, "how would geoism get turned around to screw the poor".
I'll give the standard reply here: this sounds mainly like a criticism of the current system. Are you specifically proposing some loophole in geoism that could be gamed in such a way to make things worse for the poor, beyond how things stand in the current system? Or is this more of a "things will end up badly for the poor no matter what we do" kind of sentiment? I can certainly understand that, but it isn't a good excuse for apathy.
It concentrates an important axis of power (setting prices on a rivalrous good) into the hands of the few. That is necessarily worse for the disenfranchised. I thought that was clear from my comment, I guess not.
My statement is not one of apathy, but a prediction of worse comparative outcomes with mechanistic backing.
In this case, I am saying that political disenfranchisement is the dominant reason for poverty, and how well meaning policies can wind putting in barriers poor people from owning property in the first place. I'm sure you can imagine how this closes the cycle.
It will reduce property prices, ceteris paribus. The only ambiguity is if the extent is such that it fully offsets the opposite impact of higher upkeep cost from the perspective of a poor person. I don't know the answer to that question, do you?
Another factor: it'll encourage apartment construction, which will increase housing supply, which should help poor people.
> 2. If you are poor, which do you think is easier? A higher initial capital expenditure? Or a higher upkeep cost?
Higher upkeep cost is the easier one. Many poor people have a steady an income, but no saved wealth. That's why there are many people able to pay 1800/mo for rent for years, and never able to buy their own home.
And this would make LVT the better option for a poor person, since it would turn "buying" a home into "renting" the land from the state, along with buying the building, which is obviously possible (as seen by the existence of poor renters).
The relevant case is people who have no income, but have a substantial amount of wealth (enough to buy a home). I'm not sure how you can consider that poor.
No. if you are poor, it is a real dynamic to get modestly frequent, but unreliable bumps in income. Of course these days there is no incentive to save that because of inflation, but if that weren't as much of a problem, you could consider saving up to buy a home, but you ABSOLUTELY cannot count on those sorts of things to sustain a mortgage payment, or land taxes. Like I said, you don't understand. Please, do not ever be in a place where you are making policy.
I understand what you’re getting at a bit better now, but you still haven’t explained why the current situation, where one needs to save 20% for the down payment, and then pay a monthly mortgage payment, is better for the poor.
Where are these places where the buying prices of land is cheap, but the land tax would be high? The buying prices is simply the year rent divided by some discount rate, so typically, the buying price would 20x the yearly rent/tax. That’s a large amount to have to save up (assuming a mortgage is out, like you say).
This is a fully general refutation of ANY system, because
rich people game every system, including and especially the current one. Why should the current one be favored?
The trick is to find a system that, despite attempts to game it, has an incentive structure that isn't already explicitly tilted in favor of the rich. Geoism is one such system.
I aver that it's more difficult for a rich person to game a decentralized system than a centralized one. A land tax necessarily concentrates an important axis of power into the hands of fewer people.
It's less to do with appeal to people on the other side of economic divides, and more to do with the impossibility of selling "the great thing is that it incentivises your next door neighbour to build a high rise" and "sure, your parents will have to downsize because their pension won't cover the tax burden of the house they spent their lifetime saving for, but on the other hand it's great how many investors and companies don't have to pay any tax at all" to the average voter, who cares a lot more about such concrete matters than handwavy claims about efficiency or equity.
> the great thing is that it incentivises your next door neighbour to build a high rise
This is more about NIMBY attitudes and zoning laws, which are separate issues.
> their pension won't cover the tax burden of the house they spent their lifetime saving for
An LVT won't tax the house, only the value of the land. If the plot itself is hyper-valuable, that's not a bad place to be, financially speaking. Beyond that, "won't someone think of the poor landowners?" doesn't strike me as a very compelling argument in this day and age.
> This is more about NIMBY attitudes and zoning laws, which are separate issues.
NIMBY issues and zoning laws are very much not separate issues when one of the chief selling points of LVT is building denser. It's a selling point the public aren't buying because they mostly don't want the value-maximising development next door, and being taxed as if they could develop it whilst still living in a zoned area so they can't is obviously worse. Sure, an LVT can be designed with deductions and exemptions for land use restrictions (and would have to be), but that's conceding away one of its key purported advantages.
> An LVT won't tax the house, only the value of the land. If the plot itself is hyper-valuable, that's not a bad place to be, financially speaking. Beyond that, "won't someone think of the poor landowners?" doesn't strike me as a very compelling argument in this day and age.
"Let's ignore the poor landowners" is a much worse place to be if you're trying to win over the large portion of the electorate which owns some land, which in most cases is probably the second most valuable thing they own after the house they live in (which is separate from the land for tax valuation purposes, but not in the reality that if they can't afford the land it sits on, they're under pressure to sell their home) and not closely coupled to their current income. The general principle of Georgist efficiency is that people on low incomes relative to the value of the land their house are forced to sell and this should drive down land prices for everyone, but the prospect of devaluation or forced sale of very expensive stuff they've already paid for is even less appealing to voters than being taxed on next year's unspent income. (Also, the entities which own the majority of the land turn out to be both less profitable and more relevant to the cost of basic goods like food than the businesses liberated from tax)
Regardless of whether you think these are not insurmountable problems for LVT or not, the thought of being caricatured as the guy who wants the tax system to force people to develop their homes into nice efficient apartment towers or sell in a great hurry to someone with deeper pockets is a much bigger concern for politicians than the thought people with different economic philosophies might actually agree with them for a change.
The biggest thing preventing widespread adoption of a land value tax is the implementation. Someone still needs to decide what the land is worth, there isn't an objectively fair way to separate out the value of the land from the improvements.
Or put another way, many of the same tactics can be used to distort/contest appraisals "dark stores" and deed restrictions that prevent other uses, but without an objective way to combat them
My theory is that bank loans are to blame. When we say someone has "bought" a home, it's rare that they've actually bought it, rather they've just signed a contract promising that they'll pay back a huge sum of money they don't have over a long period of time. This creates a market of buying and selling of -- in the words of Mark in The Wolf of Wall Street -- fairy dust. Big numbers like £500k, £600k are thrown around that nobody actually has.
The ability to loan large amounts of money like this detaches people from the actual buying power of their money and the price of the property they're buying. Two grand in the bank is a nice amount of money. A two grand price increase on a property amortised over 20 years is considered to be nothing because the repayments are almost the same.
The solution to bring prices back down to ground level in my view is to end mortgages. Require the money up front and therefore force prices to drop until an equilibrium of affordability is reached. Needless to say this will never happen because the people who have the power to push for this are the ones benefiting from the status quo.
Strong disagree. If that were the case only the wealthy would own homes. Available financing certainly pushes the prices up a bit as more people can buy homes, but homes really are often worth 500-600k, if you simply do a comparison to renting, and probably even more so if you factor in inflation risk, interest rate risk, and the equity gained in the house.
Only partially true. You pay a *property* tax, which does sometimes have a land component to it, but mostly is a tax on the purchase price of your home.
A Georgist-style land tax proposes a tax on solely the land, so a 2000sq-ft lot is the same regardless of a $10mil home or not.
This would require an appraiser that regularly re-evaluates the value of the land-- but we already do that! But with homes.
Furthermore, a property tax still leaves open lots of tax-shenanigans. "Look, my home is actually worth half the appraised price, thus I should be taxed half." It's harder to do so with land, since you can't easily "hide"/play tricks with its value from a regulator.
Texas (what the original article in the original post revolves around) has the 5th highest property tax in the country and the urban areas have some of the outright highest property taxes in the country on a per city or county basis. This is both a land value tax and property tax.
It's a Property Tax which is significantly worse than a Land Value Tax.
Firstly it encourages urban sprawl, which is bad for the environment and bad for cost of living and housing access.
Secondly it penalizes productive value add. Build something beautiful and you're punished for doing so.
Thirdly it doesn't have the same logical justification as the Land Value Tax, which is to tax ownership of scarce, zero sum, excludable, naturally occurring resources that aren't the product of labor.
You don't know that. There are places on the East Coast, namely Pennsylvania and Delaware that I can think of, that have implemented LVT. Normally they are hybrid approaches though.
The usual advocacy point is to reduce most of the other taxes and send the LVT way up. "We should have a land value tax" is usually meant to mean "most tax should be on land".
It will incentivize construction of dense housing, which distributes the same amount of land tax over a larger number of residents. People get displaced by gentrification because current policy encourages landlords to hoard old structures instead of building as much as possible.
Many counties in Texas have solved this by setting a 10% maximum year over year increase in property/land tax for people LIVING in their homes. There are also locks and exemptions carved out for those over 65 and disabled veterans.
Yeah there should be exemptions (i.e. standard deductions) to help low-income people (retirees with low savings, such as those dependent on social security or disabled, etc) and for people's primary residence.
What we don't want is a 50 year old who fully owns a $2 mil house and has $15 mil in the stock market and $1 mil in cash to be exempted from most property tax, but a 30 year old with $200k total assets to be on the hook for the full property tax rate. That doesn't make sense.
Land value taxes ignore the value of buildings constructed on the land. It’s very different from current property taxes because it incentivizes density.
> Common property taxes include land value, which usually has a separate assessment. Thus, land value taxation already exists in many jurisdictions. Some jurisdictions have attempted to rely more heavily on it. In Pennsylvania certain cities raised the tax on land value while reducing the tax on improvement/building/structure values.
I'm not aware of any locality in the US that has a pure Land Value Tax. There are a few localities in Pennsylvania that have a split value tax, with separate rates for land and structures.
There are definitely counties here in Florida that value land and improvements separately. But there's often no separation as far as how they're taxed. It's just all added together. Here's the listing for Tropicana Field, which is owned by the county and therefore qualified as "municipal" use:
Georgism in general, that is not only LVT but also analogous concepts for anything which ought to be commons (natural resources, pollution, etc) would go a long way into solving a significant amount of issues.
If it's marketed as a revenue neutral tax, where all the savings are passed on to middle-income earners through income-tax cuts, you might have some success.
Part of why I like bitcoin is because the artifical digital scarcity should in theory reduce pressure from the housing market by attracting speculators to a much more liquid, low maintenance, and secure asset. Just anecdotally, I feel more inclined to invest my money into bitcoin than real estate. I wonder if there are others like me?
I'm pro-LVT, but I wish that people would stop conflating it with Georgism. The controversial part about Georgism is that only land should be taxed. This might have been a reasonable position 100 years ago, but not in the digital age.
[1] https://astralcodexten.substack.com/p/your-book-review-progr...
[2] https://en.m.wikipedia.org/wiki/Land_value_tax