I feel like this whole series could benefit from an injection of public choice theory. There are many potential points of conflict between landowners and the government. In theory it shouldn't matter what level of government we are talking about but in practice it does.
For instance with the argument about corruption, with current property taxes if you bribe the local assessor to undervalue your property then you benefit yourself and hurt the local community. Local democratic control of the assessor will work against this sort of corruption and push towards fairer land values.
With a Land Value Tax going to the national government, the incentives are all messed up. The local assessor hurts the faceless suits in Washington when he undervalues your land and helps out his friend in the community. Local democratic control of the assessor pushes towards systemic underappraisal of the land.
To counteract this you need to impose centralized standards and make the assessor an agent of the national government. But then you lose out on the local knowledge.
The same thing applies to discussions of zoning. Currently restrictive zoning rules pit two local groups against each other. Those who want to use the land intensively lose out from restrictive zoning while those who want to use the land less intensively (low density housing or dinghy apartments) gain from it.
With a Land Value Tax you lose the local stakeholders in favor of intensive usage with generic national interests. That means that to the extent zoning decisions are made locally they will be even further skewed against development.
Yes assessment is the major challenge for implementing a land value tax, and generally assessment for property taxes in the US is not done very optimally. This is really a good opportunity to do a lot of improvement of assessment practices and incentive structures.
In any case, the assessment problem is still better than the issues with the current tax code. You can't hide land in a Swiss bank.
It isn't really an assessment problem, it is a conceptual problem. The methods discussing here aren't estimating the "value" of the land, they are estimating the "price" it would sell for, which isn't even remotely the same thing, it is the intersection of supply and demand.
We then have a bizarre circularity where the tax is determined by a modelled estimate of what the price would be in a transaction, and a problem where the transactions themselves take place in an environment where radical expropriation of property value exists.
I don't think it even conceptually makes sense, it all rests on a chain of nonsensical assumptions - e.g. market price = land price + replacement value price, which is not remotely accurate even in a normal market, let alone in one where the landholding public lives in fear their property will become a noose around their necks.
To be fair, you could take the logical extension of Foucault's work on power to apply here and say that applies to all taxation. I would worry that Georgian is like communism though: an ideology which might be theoretically sound (although I personally don't accept that part II proved the key point that costs won't be passed on) but which on practice will be perverted by the fact someone has to wield power over the system, and there's no way to ensure that person is and will remain the perfect Georgist.
Yes that's true, all I am saying is the argument that landlords are evil because they expropriate rent, therefore we should implement georgism, whereby the government will expropriate rent on a massive scale, does not seem compelling. Is this the "two wrongs make a right" school of good governance?
I was just going to say this. Even if you accept everything presented in these articles, there is huge public choice component, especially when it comes to assessment. I’m not even worried about blatant corruption as much as I am politicians tweaking assessment techniques to try to achieve their (and their constituents) preferred outcomes. That’s not necessarily a deal breaker, but it requires some thought.
My take always comes down to "are the problems of this system of governance a better baseline than what we have, and can we incrementally implement the ideas to test falsifiable hypotheses."
Georgism poses many falsifiable hypotheses, can be incrementally tested, and I think the potential downsides are more manageable than our current problems.
Here's one idea I'd consider: potential increases in land value are a key part of how the existing population of an area is "bought off" to get political support for nearby growth and development. Or, at least, "bought off" enough to have a chance at overcoming political opposition.
There are of course caveats. Not everyone owns land, though the population with some land ownership is large in most places: homeowners, small landlords, etc.
In general, the observed reality seems to be that most people see more inherent downside than upside from nearby growth and development. There's more traffic, there's more noise, maybe it's not aesthetically pleasing (e.g., blocks a view), maybe it makes the local public schools more crowded for a period of time. There's disruption during the time period of construction, including additional infrastructure.
That may not seem wholly logical, but it makes more sense taking into account (1) people self-sorting to the types of places they prefer to live and (2) loss aversion.
But under a high-value Georgist LTV, those gains in land value are taxed away. A Georgist reply to that argument is that the carrot of land value appreciation has been replaced with the stick of a high-rate LVT. The high-rate LVT makes it very expensive for a landowner to use land for a purpose far below its highest and best economic use. And perhaps that would largely work in places where land values are already very high.
But what about the people elsewhere who are reading the news and seeing how an LVT impacted homeowners in those high land value markets? In those lower-cost cities, suburbs, exurbs, and rural areas, here are the conclusions I'd draw:
(1) If I'm a large landowner, I can't make nearly as much money from growth, so why devote much effort to fighting for it?
(2) If I'm the median homeowner, I don't look at this picture and see much financial upside from nearby growth. My downside is now not just my prior non-economic concerns but also seeing the possibility that higher taxes could mean I can't afford to live in my home any longer.
One Georgist counter could be that we should have legal and regulatory system with a very strong presumption that people can build what they want on their own property. That ship has long since sailed in the U.S, however, based on current zoning and land use regulations. As other commenters have noted, those could be changed by political processes without changing our current tax system, and indeed there's some amount of variation across different parts of the U.S.
(Interestingly enough, I'd say that "a very strong presumption that people can build what they want on their own property" *was* a good summary of the legal and regulatory system in the 19th century U.S. that Henry George inhabited.)
Based on the above, it's at least highly plausible that the political realities of a Georgist LVT would result in a highly anti-growth bias across most of the U.S.
To be honest, Georgism sounds like a dystopia. As far as I can see there it works as follows. Firstly, the government either expropriates all land or buys the land from the current owners. Then the government acts as a landlord, with the caveat that there are no renter protections and the government squeezes the rent as high as it can go every year. If there is someone who will pay more, the government gives the land to them.
This sounds like the very worst behavior of evil landlords. I suppose you could try to ameliorate this by allowing renters to have some protections, but once you do that, you have just re-introduced land as property, as really, what is the difference between owning something for 100 years or forever.
You could hope the government was not completely heartless and sometimes gave people a break rather than thrown them out on the street, in which case all you are asking for is corruption.
All the benefits of Georgism come, as far as I can see, from two aspects. The first is the government taking all the land. If the government gets this for free, this is obviously a win for them. If they don't this is only a win if land continues to increase in value. The best estimate of the value of a piece of land is its current price, so I don't think this is necessarily a great bet.
The second aspect is the flexibility of land use it introduces. The right development will be done as someone will buy out the land and put it to better use. The problem is that we have an installed base of people who live there who don't want to be inconvenienced by the change. They are the people who stop developers from building. This flexibility if great for increasing the utility of land but you could get the same benefit by just allowing landowners the right to build whatever they wanted. If landowners chase profits which is a good initial model they will build exactly what maximizes profits, the same uses that Georgism would build.
Georgism seems based on the hope that land will rise in price forever, and is currently undervalued. If this is the case, why isn't land worth more? If secondly imagines a wild west level of development that happens nowhere outside Yellowstone (the TV show). No one can seriously imagine poor tenants being evicted every year because their building is on land that could be better used for some other purpose.
Is there another benefit to Georgism other than the government getting the upside to land appreciation (if it exists) and the added flexibility? I suppose one benefit is the feeling that landlords are being screwed. The problem is that this exchanges landlord with the government, who is probably just as bad. The dream is that landlords would continue to exist, between the government and the people, to be continually drained of money. The tenants would pay the same amount while the government would demand more, and Mr. Moneybags would take the hit. What happens is Mr. Moneybags is taken out of the equation and the tenant rents from the government? It sounds dystopian - every increasing rents. What happens is Mr. Moneybags is an LLC? It goes bankrupt and there is no one to shoulder the cost, and the tenants themselves renting from a bankruptcy court that can't sell the building as it is worth less than zero.
Some questions for Georgists?
1. Will land prices go up forever(faster than inflation)? If so, why are they not higher now?
2. The government owning all land seems the same as charging 100% land value rent. If the government does own all land, will they give tenants any rights beyond 1-year rental? If a restaurant needs 5 years to establish itself and make money, would the government consider committing to a fixed rent for 5 years? If 5 years, why not 10, 100, or 999 years leases as in London? These leases could be non-transferrable, but without restricting on sub-leases, they would still act as property. Will the government ban sub-leases?
3. Most people will expect reasonable tenant rights to continue to exist, like the right of a tenant to stay in their home. How will this work in a world where landlords can have their building seized by someone who pays more to turn it into a golf course? What happens to the tenants?
"Then the government acts as a landlord, with the caveat that there are no renter protections and the government squeezes the rent as high as it can go every year. If there is someone who will pay more, the government gives the land to them. This sounds like the very worst behavior of evil landlords."
I agree! It's exactly like the system we have now, except who the landlord is. This strikes me as a win though, and a big enough one to be in favour of Georgism: IMHO the government is a better landlord. You *want* a landlord who, committed to never selling their land, will ruthlessly lease it to the highest bidder, instead of sitting on it, not particularly maximising its productivity, merely hoping to sell it later for a profit.
And I would much prefer the rental income go to the government as general tax revenue (capable of replacing other taxes) instead of it going to essentially random people who either lucked into owning the land in the past, or who (perhaps skillfully!) speculated on land, neither of which acts contributed anything to society. I love capitalism when it works, but profits are useful only as incentives, and so the spoils must be earned by providing something valuable to the world. Just because land speculation might sometimes require skill, doesn't mean it's providing anything of value, so allowing people to profit from it does not serve a useful societal purpose.
Furthermore, in the current world you pay the landlord rent and you then pay taxes to the government on what you make. In Georgism, at the very least your pocket book is not being double-dipped!
>You *want* a landlord who, committed to never selling their land, will ruthlessly lease it to the highest bidder, instead of sitting on it, not particularly maximising its productivity, merely hoping to sell it later for a profit.
This sounds horrific, I am a capitalist but not that capitalist. Under our current system you lose potential earnings if you underutilize your land, under Georgism it seems like you get taxed based on the potential earnings a bureaucrat thinks you should be earning and then get evicted.
Do you think it's wrong for people to want to own their own land and homes?
Whether it's wrong isn't relevant to how I would want to make decisions about what should and shouldn't be the case. I don't think wants are wrong in and of themselves, but that doesn't mean it's good policy to indulge them. It's not wrong for me to want a million dollars, but the law should not allow me to steal it (not implying an analogy where owning land is "theft" or anything like that, just a simple example of understandable wants being understandably disallowed).
As I mentioned elsewhere in the thread, I would prefer (and am optimistic about) a market mechanism for determining the land value, rather than a bureaucratic one.
Businesses that use scarce resources without producing a profit go under. If they are propped up by a system that gives them a monopoly over a scarce resource (whether they paid for the monopoly rights back when it was less scarce or not), we would call this crony capitalism. It's unearned profit, it concentrates wealth, makes the distribution of that resource less efficient, and does not contribute to society.
People who own land are not evil, and I'm not on board with those in these threads who would propose simply taking the land from current owners - it should be bought from them at a fair market price, or the tax brought in gradually enough for it not to make a material difference to anyone who recently bought property.
They are simply acting in their interests right now. I'll be buying land in the not too distant future, because I want to have full rights over what I can do on that land. It's a great ideal, I don't want to be a slave to anyone.
But it makes no difference to me whether I pay rent on the land on an ongoing basis to the government, vs paying it up front to the seller (in practice still an ongoing payment to the bank that loaned me it). The only people that would make a difference to are property speculators, who are banking on the value of the land itself increasing.
I very much value the right to do what you like with your space, I just don't think you ought to be entitled to the capital gains. Whether or not you technically "own" the land or not isn't relevant to me, so long as you have those rights.
I'm sure there are versions of Georgism you could formulate where you do buy and sell land and actually "own" it with no ongoing tax that you can be evicted for not paying, but you pay a 100% capital gains tax when you sell it. That would be fine too. Would something like that be amenable to you?
We just want to take away the incentive to speculate on land prices, and the unearned and not-useful-to-society profits that are made by people who do this. It's a redistribution of wealth to the already wealthy, without any societal payoff to justify it.
They are rough estimates of the demand for that piece of land. "Done correctly" are not words to take lightly - we have extensive history of property value assessments, and we're fairly certain that no matter how people have tried, in all cases they're not really "done correctly" and have all kinds of obvious bias, some of it random, some of as intentionally skewed by policy, and some of it through corruption.
So in order to make the extraordinary claim that *this time* it would be "done correctly" it would require extraordinary evidence - and no, merely showing that it technically can be done correctly is far, far from being sufficient to assert that it's plausible to do it correctly in practice, given all the organizational and societal problems which all the current property assessment schemes have failed to completely overcome.
I go back and forth on this, because I use/subscribe to a company who protests your taxes for you every year automatically.
On one hand, it seems I am wasting money (or energy if I was doing it myself) just for selfish benefit to make my slice of the budget pie a bit smaller.
On the other hand, we don't think hiring a criminal defense lawyer is selfish. The adversarial process produces the best outcome that we have developed so far. So if advocating/hiring someone to advocate for yourself isn't corrupt in criminal trials, or in civil trials, why is it corrupt to do so in these kind of administrative proceedings?
Well no, in the current system whenever I want to make an investment in some improvements and I'm afraid of the risk of a bad landlord, I can solve that risk by buying the land and tying the land to the buildings. If I'm unable to own the land and are restricted to renting, or in the case of LVT, being subject to large (rent-equal, unlike current property tax) payments which, crucially, may significantly increase for reasons outside of my control, then that is a major risk that may dissuade me from building that improvement.
"IMHO the government is a better landlord. You *want* a landlord who, committed to never selling their land, will ruthlessly lease it to the highest bidder, instead of sitting on it, not particularly maximising its productivity, merely hoping to sell it later for a profit."
The federal government currently "owns" 640 million acres -- 28% of the land in the United States, most of it in the west.And it has been sitting on that land, not particularly maximising its productivity, for a century.
The US government routinely rents western land to cattle grazers. It also permits natural resource extraction and establishes national parks for public use. What more do you think they could do to maximize productivity?
The US government rents western land to cattle grazers because raising cattle in those areas is an incredibly inefficient use of land and requires more land than the ranchers own for the damn things to survive. Much of the resource extraction is done at the expense of, not to the profit of, the state/public. What they could do to maximize productivity is open it for homesteading or auction it off.
"You *want* a landlord who, committed to never selling their land, will ruthlessly lease it to the highest bidder, instead of sitting on it, not particularly maximising its productivity, merely hoping to sell it later for a profit."
Well, I own my own home (because I inherited the family home after my parents died) and I'm not "sitting on it hoping to sell later for a profit", I'm living in it and will continue to do so until I die myself.
I can't turn it into a block of flats because I don't have that kind of money. Under Georgist system, if all zoning is abolished and high-density housing is practicable where I live, then I will be taxed based on "if you had a block of flats here and rented it out to fifty people" instead of the current property tax.
And the "rent to fifty people" is estimated on current market rates which are high because of housing scarcity, so I would be in the position of "we're taking your house and making more productive use of the land". And then where do I go to live? Try to rent a flat in the place where my home used to be? Try to find a cheap bedsit where I live in one room?
It is true that you and everyone else will be incentivized to build more housing on your land or to sell it to someone else. This should suppress the cost of housing (since supply has risen). You should still be able to afford the same sort of housing, though perhaps on another location.
Kinda sortof. If you put things in the worst possible light, then yes. But mostly think of prime real estate homes as the next gen "old castle". Nobody really lives in them anymore - partly because they're too expensive, and partly because it's better to convert them to something else.
In practice I'm betting LVT will be set at a laughably low level compared to the value of the land, so what's going to actually happen is:
- in most cases a somewhat higher property tax. Well within the domain of "raising taxes a bit" and far from paradigm change
- if your house happens to be prime real estate, you'll be able to keep it, but you'll noticeably pay for the privilege.
- in a very low minority of cases, you won't afford to pay the LVT, but things are set up so it'll only happen if the gain for society disproportionately higher than your loss. Which is what you described, except it will be a rare event, and if you tell the story from a YIMBY perspective it will sound a lot different.
Also what you're describing is mostly a transitional problem - the fact that you already live in your home. If enough time passes to change generations it'll be partly inheritance tax and partly "the times are changing". And no new homes will be set up in such places unless people really expect being able to pay for the privilege long term.
Also barring the transitional period, LVT is fair because it's taxing commons: your land is "good" due to the stuff other people built around it. It's not taxing (say) 70% of your land value. It's letting you have the other 30% for free.
Is it really true that land speculation provides no social value? If I anticipate that a plot of land near a city will soon be much more valuable when the city expands, so I buy it up and keep it vacant long enough to be incorporated into the metroplex with a high-level development, doesn't that provide value to that city relative to the counterfactural where somebody starts using it for low-intensity farming or as a dump or whatever, making it more difficult or more expensive for the city to develop it when the time comes?
"I agree! It's exactly like the system we have now, except who the landlord is. "
No it isn't. The system we have now includes landlords who compete with each other. If landlords raise the rent too high, renters will stop renting from them. The government doesn't compete with itself.
The system we have now also allows you to be your own landlord, which the new system doesn't.
People who own their homes in areas with insane housing crises would have a higher tax bill under LVT - although cuts to other taxes could lead to a net gain https://www.geogebra.org/m/cDDWcAxj
California has a lot of single-family homes where land values indicate a need for much much more housing- people make millions off this discrepency, at the expense of those in poverty
I agree that people holding single family homes in busy urban areas while the value keeps appreciating is an issue. A couple of thoughts:
1) There are other ways to address that particular issue, including changing how zoning laws work (which Georgists seem to agree is important anyway), and reducing/removing the ability of locals to veto housing expansions. A person can even hold their single family home in this plan, but would have to deal with apartment buildings being built nearby.
2) Growing urban areas, where LVTs and Georgist thoughts make the most sense, are not all areas. If local cities want to implement an LVT in line with what we're talking about, that makes a lot more sense than a universal LVT that includes small towns and rural areas, or even smaller cities where urban growth and rents are both lower.
Note that people owning single family homes in busy urban areas is basically the only category of homeowner that will be significantly hurt by a transition to Georgism.
Take my case as an example where I've done the numbers. I live on the outskirts of a large town, with an adjacent cornfield. The immediate proximity of farmland (and the very similar plots that have sold in the last couple of years) allows me to have high confidence that the land value of my 5 acres is ~$25000. Assuming 8% capitalization, that's a $2000/year land rent.
My property with improvements is under assessed (at about $150k when I purchased it for about $250k last year), but my property taxes are still about $2200/year.
Note that I have a LOT of land compared to most homeowners, which will probably compensate for the higher land prices as you move into town. Vacant lots in town seem to go for 20-25k per acre, but single family home plots are usually much smaller than an acre, so their LVT would be lower than mine for a similar current property tax value.
Outside of single family homes in busy urban areas, the home really is the majority of the value, and isn't taxed under georgism. That's the difference between the government in georgism and a landlord; you only pay for the land rent, not the building rent. In cases of single family homes in the SF area, etc. it makes sense to incentivise them to sell and do something far more valuable with the land.
My main issue that they were already incentivized not to buy recently (by being charged an absurdly high price for the land) and implementing georgism is unfairly depriving them of what they just spent a bunch of money on. A fair transition is a major problem for georgism.
So basically, if the government decides to facilitate mass immigration, I have to sell up? I contributed to my area being desirable, through my work directly and through taxes paid which helped to develop physical and social infrastructure. But instead of being rewarded for that, I'm penalized.
Off the top of my head, a possibility would be to allow 10, 100 or 999-year leases but only if you pay the whole 10, 100 or 999 years' worth of rent up front.
Yeah, in the 999-year case that would be the effect in practice, but in the 10-year or even 50-year case people could take a loan and/or use their savings.
short-term leases would be less valuable, (and thus less costly) as a result. Allowing you to invest elsewere (perhap in something that actually stimulates the economy).
The problem for that is that for land short-term leases limit making improvements, and we very much want to facilitate making improvements. In order to justify pouring in the money into building something, you would want to lease the land for the expected useful lifetime of that building, or at least for a long enough time for the building's rent to fully repay it's construction costs, so we're talking about multiple decade long leases - and, crucially, with a *fixed* price, not like an LVT that may triple after ten years.
If the time value of money is not unreasonably low, the difference between 30 and 100 and 999 years is small. At 5%, the first 14 years is half the value and 30 years is 75%. 100 years is within 0.5% of the forever value.
Taking land away from the speculative equity markets is the central feature of Georgism, yes, you'll have to use the stock market like all the poor people now.
This is not a good system, because its impossible to know what future rents might be right now.
Land reform/tenure systems are semi-Georgist, but as you get farther and farther down the road, the payment gets less and less detached from the actual value.
Is the rent discounted, so that you only pay the net present value of the future rents? In this case, with 100 year or 999-year leases, if they are transferable, you have created something indistinguishable from property. If you allow this, why introduce LVT in the first place? The value of a property is the net present value of its future rents, so land would be valued at its current price in this model.
Good point, and apart from the "large and quick tax change is unfair", that's a big argument against georgism: when you reframe it as "replace private landlords by the gouvernement", you can see there is a problem: power concentration. Regardless how corrupt and evil private landlords are, they have very limited power and coordination. While the government is somewhat coordinated and already concentrate many powers... I was somewhat sympathetic to georgism before, with caveat of very progressive change and an instinctual reluctance to apply it on land used for main residence... After this reframe, i am now against it, as a new push for more societal control, collectivism 2.0. This trend is accelerating so much this 21st century it become ominous...
Also, if you accept that LVT means the state is the land owner, private actors are renter, it means you will build on rented land. This is something that already happen, but rarely, usually on state owned land and even even more rarely on privately owned land...But the usual situation is that the building and the land is owned by the same entity.
And for good reason: building on rented land expose to confiscation, by rent increase, because you can not move the building. So imho Georgism means you completely trust the entity that will rent you the land. Judging how building on rented land is uncommon now (in countries where foreigner can not buy land but build homes, or Emphyteusis usually 99y arrangements), most people do not trust the renter enough, even when it is a state.
Exactly, while "screw landlords" revenge fantasy is titillating (especially given that I will soon look for place to rent again) the solution as presented seems quite suspect to me.
At least admit that the plan is to take land from all current owners of land (which problem is self solving as it requires powerful people to not block something that will take large part of their wealth).
The proposed tax is supposed to be such as too remove all value from the land itself, i.e. Be as high as the market would pay for the land. This is a rent, so the land loose all value and is rented from the state
Isn't the tax supposed to be set at 100% of land *rent*, not land *value?* As in, if the land is worth $10k and the cap rate is 10%, the LVT would be $1k?
Yes, but if the rent is rightly evaluated and fully taken by the state, how much do you think your land is still worth, how much you can sell it? Zero, of course...
Well, the idea is that an empty lot would be worth 0 but a building used productively would be worth more, since returns on capital investment aren't taxed.
I think vey few people propose a full 100% LVT though, if only because that makes you very vulnerable to inaccuracies in the evaluation.
The main profit of Georgism I see is to prevent anyone from getting money just by owning land without contributing something and expecially stop all speculation with land that drives prices and rents into dangerous bubbles.
Under Georgism you would still be the owner of the land so you decide what to do with your land and if your sell it or not.
Most of the problems you see, come from the idea to implement a land value tax (LVT) that is only based on the current value of the land ignoring how you actually use your land. With such an LVT the government wouldn't force you directly to do anything (except the usual legislation that is in place already), but if the value of land raises by local development (or just because your area gets famous) the tax would raise making it impossible to use the land the way you want and did before. But this force isn't the government arbitrary medling with your affairs, it is more like the forces of the markets.
Gentrification already exists. First the landlords raise the rents and the renters leave. Then the owner-occupiers realize they can have so much more someplace else if they sell, so they sell. Then the holdouts eventually have to sell because they can't afford it (but at least they get a nice payday).
Under this system, the renters are in the same situation. The holdouts are mostly the same. The only difference is the owner-occupiers and the holdouts don't get their payday (unless the use for their structure is markedly similar), but in exchange they got the house in the first place for cheaper and their other taxes have been much lower for years.
I know about gentrification. But I think it often it is not for the better, so I don't want a system that always enforces it.
Often a specific quarter is attractive mainly for their local social fabric and culture that often develop best when the land is not used most efficiently in economic terms. If now these people are forced out because of the attractiveness they built up together, this is not just, and the local culture will probably suffer.
If land values rise because some investors think they could run profitable Hotels there, not everyone should be forced to sell their property because of rising LVT.
I understand the need to have some pressure not to block really needed land, but there has to be a democratic process involved, not a pure automatism. Expecially not one that kicks in too often and too early.
I didn't say gentrification is for the better, but that it already exists. Many places have a 2% property tax today that, like it or not, increases when the neighbor's value increases. How is this any different? We have protections in place under the current system, we would likely have protections in place under a LVT as well.
The gentrification we see in Texas often isn't because a neighborhood is attractive for it's local social fabric. Areas normally gentrify the moment the value of not having an hour commute exceeds the risk of crime. There are some exceptions, but those are primarily because the local neighborhood fabric is actually the close proximity of enjoyable retail, not anything like a particularly vibrant HoA.
I'm not a Georgist. I hadn't even heard of it before a previous SSC article. But the current democratic process has both property tax and eminent domain. Where are you seeing places that have adopted a LVT and are having it displace communities too often and too early?
Of course the worst cases of gentrification are the ones you hear about the most, and the symptoms may be different here in Germany than in Texas.
As far as I know the main driver for the negative aspects of gentrification is not property tax but raising rents and prices. This could be different if you have a LVT as high as discussed here, that it effectively collects the whole land earnings of the best possible use of the land, which often seems to imply the most profitable use. If the LVT is coupled like this to the current market value your landlord has no choice but to increase your rent accordingly if he doesn't want to make a real loss. This couples the price to rent a apartment to the general (rising) value to land while the wages of most people will not increase.
I'm not a Georgist, but almost became one reading these articles here, so I'm just thinking of all consequences Georgist policies would have, or better how to shape them in detail not to worsen some of the problems we know about as a side effect.
See, this was something that surprised me when reading the article and the comments. I had thought that this would be a very high tax, but it isn't as high as I thought.
In the US property tax rates in states without an income tax are about 2%. These states tend to be considered the more "affordable" states compared to the income tax ones which usually also still have a (smaller) property tax. Not sure how accurate that is.
Something the author of the article said in the comments (and was borne out by some other related articles) was that if you were to correct the property value portions between land and improvements (as in, if a property is valued at 500k now, and allegedly it's 10k land and 490k improvements, and this were to be corrected so it is still worth 500k but more accurately say 270k land and 230k improvements, or whatever ratio is actually accurate for the area) then the LVT would be equivalent to a 5.5% tax on the appraised value of the land.
For many many many people in the US, a 5.5% tax on the land appraisal would be significantly lower than a 2% tax on the property appraisal. For most people their house/improvements alone are worth significantly more than the cost of buying an empty lot. For some people this is not true, but this also isn't vastly larger than the 2% property tax they face today.
I was a little worried about the possibility of this kind of policy forcing people to leave houses they'd lived in, but then I asked all of my friends that I could and found that almost none of them have any property that has been in their family more than a single generation (ie, not even any houses that had belonged to somebody's parents). So clearly this is already something that is occurring all the time under the current system and I'm no longer dissuaded by that possibility. (At least where I live, could be different in other places)
My landlord doesn't have to have had the property appraised when they decide what to set the rent. I mean they do get it appraised (or at least compare to similar properties in the area) to give them an idea, but it's not crucial that they get it right, and it's not the final say. It's self-correcting: if they set it too high they get no tenants, and if they set it too low they get a lot of applicants when it goes on the market so they know they could charge more. They aim to set the rent at whatever the market can bear. Should the government not do the same when deciding the tax rate for properties? Isn't that what correctly valuing the property would mean?
In the previous threads there was some discussion of how bad it would be if the government set the tax too high - in excess of 100% of the value. The badness that would result (people abandoning their properties or being unable to pay the tax) would presumably be visible to the government. And, as argued, it is bad for the government's income stream if this happens. So, like my landlord, their selfish interest ought to be in favour of setting the tax rate "correctly", i.e. at the rate the market is willing to pay, which is by definition its value.
I wonder if the government could essentially just charge whatever they like, like my landlord does. It would be *informed* by appraisals I'm sure, as a good initial guess, but then they'd use the feedback of the market - how long it takes a property on the market to sell etc - as feedback to adjust it. It would ultimately just be their call to set it, and you could complain, but their word would be final. Your complaint would actually just be advice to them that they might be shooting *themselves* in the foot. Which I hope they'd notice, but you might be able to give them some advanced warning.
If it is indeed in their selfish interests to get it right, then there's no need for the appraisals process to be sacrosanct, it would just be one factor, an initial guess to a feedback process. Like my landlord, they would just be trying to extract maximum income however they can.
I'm sure three seconds' thought raises issues with this. But I still want a market mechanism, even if the government is the only "seller", and it seems tantalisingly close to being possible given these arguments that over-appraising would actually hurt the government's income stream.
Actually William Vickrey, a Georgist, won a Nobel prize in economics for his auction system which he designed specifically for land valuation. Many Georgists propose using Vickrey auctions either to replace or to supplement regular assessment practices (double Vickrey auctions on separate bundles of rights when selling land + improvements). So there are certainly market mechanisms for price evaluation; Lars does not go into them here however because land value taxation would probably be implemented- at least at first- as simply a modification of the property tax system, which always uses assessments.
I'm not sure how that would help in Georgism specifically. Sure, it may be an improvement on getting good valuations from auctions, but I'm happy to presuppose that even non-optimal auctions are a pretty way of doing valuations. But in a Georgist society, the auction, Vickrey or not, would only give you information on the total value:
total value = land value + improvement value - tax obligation
You still have the problem that determining the left land side accurately does't tell you what the first term on the right is, without additional information. Unless this is something you're saying you can get at with "double Vickrey auctions on separate bundles of rights when selling land + improvements", but if so you'll need to elaborate, as I'm not following.
I'm not an expert on the auction field unfortunately, I have mostly dedicated myself to learning about assessment methods because they are what Georgists deal with on a practical level. But from what I understand, a double vickrey auction conducts parallel sales- one for the land with the improvements and one for the land without the improvements. You can subtract the difference to get the value of the improvements vs the value of the land. There is quite a bit more to it, which I am not remembering, but that is the gist of the method. If you join the GeoPraxis Discord server I can easily connect you with people who know much more.
There's a quite elegant mechanism called the Harberger tax, that occasionally pops up in discussion of LVT. Basically, everybody decides the public price of their land, and pay taxes based on that. The counterpart is that anybody can buy their property at the listed price, at anytime. Robin Hanson discusses it here: https://www.overcomingbias.com/2017/10/for-stability-rents.html
I'd be curious to know if anything like that was ever tried in practice. Not sure how well this could separate the value of land and that of improvements.
Harberger taxes work out to be equivalent in many ways to a situation where 'land' is owned by the commons but rented out for a fixed term to the highest bidder. Not sure if any actual land made of dirt is distributed in this way but some countries use it to allocate the airwaves to telecoms companies.
This is a fun thought exercise, but in practice no one wants to live this way. I don't want to wake up tomorrow to find out that someone bid me out of my house and I have to move. (And I don't mind paying 5% of my land value in perpetuity to the government under an LVT.)
Even still, that could get really bad, really quickly. A better option is that the state assesses you land, and is obligated to pay you the full value if you decide to move. Leave the decision in the hands of the landowner.
That would probably work as well, although the state might want more frequent assessment.
I was thinking of a similar thing, where the state assesses and the owner assesses. Then if the state is higher, have an auction with the owner's assessment effectively being the reserve price. The owner can match other bids if they want to keep ahold of it, but if no one else bids over their assessment they keep it by default.
Other than all the times where life events simultaneously decrease willingness to move and free time. Because God knows the first thing I want to think about when I have a sick newborn or need cancer treatment is "Gee, better raise my house value by 10% so I don't get my house sold out from under me in the middle of chemotherapy!"
My land value has doubled over the last few years after 10 years of being rather flat. If I had been busy with life[1], someone would have displaced me last year.
If my taxes go up by 2x, well, okay, I'd rather that not happen, but at least that isn't displacing me, and I can at least have hundreds of thousands of dollars I can borrow against to compensate me.
[1] This happens when you get older and get married and have kids.
This would not allow separation of land from improvements. I'm with Edward that the bigger issue is that you could suddenly find yourself outbid, unless you intentionally overpay your taxes to scare off investors. You would also have tons of people intentionally underpaying their taxes by lowering their own value - with two concurrent problems of lower tax revenue and very upset residents who may suddenly find themselves without a home after years of underpaying. I can hardly imagine a worse system for the majority of people just trying to live their lives.
The problem with abandoning is that land is inherently tied with existing buildings, and there is really no fair market for rent in this case as you can't take your building or other improvements and go away to a different landlord, so in the absence of regulation, the land owner can exploitatively capture most the rent value of the building as well (since the only options of the building owner are to pay up or tear down their building), so it's commonly limited by regulation to some proportion of the land value - and in Georgism it would probably be equal to LVT.
So if you have a building and a land, and the LVT is too high for some reason, abandoning the land does not help you in any way as the government or any other landlord would just be charging you the LVT as the rent for the land under your building.
The original poster capture the issue of splitting building (improvements) from land: you can not move the building. There is no way for the building owner to magically shift it from one parcel to another, while a current rentrer constantly move from one rented place to another (knowing you may have to move is one big reason to rent, even while it cost more. How would the builder move its asset if LVT get too high? He can't... And he can not even sell it at a fair price, because if he can not bear the LVT, the way to bear it probably involve a new use for the land, so existing infrastructure are a liability, not an asset...
In fact, looking at the rent market, Georgism would be a huge boost for mobile home and state owned home, with private building owner being a super minority. Which is a possibility and a big step into the rent only future many big economic actors want...
> I wonder if the government could essentially just charge whatever they like, like my landlord does.
Landlords can set individual prices for individual tenants, giving a break to one or raising rent on another.
That's legally okay for a landlord (although I raised an issue with this in the previous thread).
The problem would be that they could squeeze individual parties. Bills of attainder suck. Can the government charge a specific person more because they don't like them and give a discount to their buddy?
I’m quite confident they could and would give discounts to favored groups. This happened already. It sometimes seems that every election cycle in Virginia there is a referendum on giving some tax break to veterans and their families, for example.
I would prefer an LVT to a income tax, but it's turned out to be surprisingly hard for the government to say that certain occupations (at the same pay rate) have to pay less or more income tax.
Farmers, I guess, which sucks, but that's as far as it's gone.
'COST' taxes would maybe be what you're looking for. the idea is to exploit auction mechanisms to properly appraise land values.
Step 1: Land owner declares value of the land on their property, government taxes that land accordingly
Oh no, what if they lie!
Step 2: If someone wants to buy the land at the declared value, they can
We'd probably add some exceptions or delays, reducing efficiency up front but saving us from errors long term.
The scope of the 'exceptions' necessary is what would make COST taxes either an improvement or waste compared to traditional assessment.
As someone brought up, Vickrey proved this works for 'economic land' with auction theory on access to natural resources like spectrum and drilling rights. It could work with other economic land as well, but expanding that experiment would take some care. I think it would be worthwhile to try.
COST taxes are a possibility in the current environment but are fundamentally incompatible with Georgism where the market value of land to a speculative/investing buyer - the future net cash flows from rent - is zero, as it's all captured by the LVT.
Hm, so this series didn't respond at all to Bryan Caplan's argument against the LVT (https://www.econlib.org/archives/2012/02/a_search-theore.html), that it disincentivizes looking for new *uses* for existing land? (E.g., looking for oil.) Any thoughts on that?
Terry Dwyer also covers this more extensively in his "Taxation: The Lost History" in various sections, such as "Rent As Reward for Risk" - https://www.jstor.org/stable/43817496?seq=34
Hm, OK, so taking a quick look at some of these, it seems like the probable answer that some of these have converged on is "yes, there is something of a problem here; but the appropriate answer isn't to abandon LVT, but rather to grant discoverers of new uses patent-like temporary reprieves from it". Interesting. I'm not very clear on how that would be implemented, but it seems likely it can be in some way. Thanks!
Yup it's a fair critique, but it seems like we can come up with a better solution than "Give the discoverer all land rents forever and ever, Amen"
It seems pretty silly to assert that because Christopher Columbus discovered new land uses in the Americas he and his descendants should be able to extract all the rents from it in perpetuity.
Yes sorry Caplans argument was addressed in the comments earlier so I didn’t want to ninja edit an already finished article on a short deadline. As an additional point, look up Norway’s very arguably Georgist oil exploration system set up by Iraqi Norwegian immigrant Farouk Al Qasim. They massively subsidize *exploration* but also massively tax *extraction* with a hefty severance tax, an LVT for natural resources that can be depleted. Norway’s system works incredibly well, incentivizes incredible innovation and research and development as well as efficiency, and the bulk of the natural resource wealth itself, the people’s oil, goes to the people.
I think the problem Caplan and Gochenour bring up can be solved by reversing who sets the price of land and who decides to sell. If the state sets the assessment but then must sell at that price if you wish, the issue goes away.
(Admittedly, it does raise a different issue of getting your crony to over estimate the price of your land and have the state buy it, but perhaps that could be done by having the state buy it only on contingency of reselling it immediately or something.)
I did force myself read these three essays, after being shamed about being driven off by the applause lights.
And while I did, two things kept blaring in my head as I read the essays, and more more while I read the comments: 1) Goodhart's Law is as unyielding as thermodynamics and harder to work around, 2) Public Choice Theory is true, and 3) it was enragingly difficult to read the comments because as soon as someone started talking reasonably and intelligently about transition fairness, someone else snarked moral equivalence between people who own their own houses and slaveowners. I have only so much spare assumption of goodwill, and this exhausted ALL of it. Marxbro was easier to swallow. And I bet someone could do an analysis on the comments, and accurately determine who owns their house, and who pays rent.
Me, I will sit back on my 9 acres of forest with no neighbor sightlines, my trees slowly growing back after being clearcut three times in the past 150 years, and wish nothing but malice on this idea.
Goodhart- yes, that Goodhart- co-wrote a paper with Tideman advocating land value taxation (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3960235), so apparently he himself does not see his law as an issue. As far as transitions and compensation goes there is certainly a reasonable case to be made. It is not reasonable to punish people who have simply done what the system incentivized them to do, and I have no interest in doing so- all I want to do is change the system, so that in the future it can run on a better, and more just, basis.
You are (understandably) confusing land value with land rents, because Georgists seriously need to find a better way to separate these two with percentages, similarly to confusion over "percent" versus "percentage points".
So when we talk about 85%/100% LVT we're talking about that amount of tax *on annual land rents*. So in an area where the cap rate is 5%, then an annual 5% tax on the full market value of my land, *is* a "100% LVT".
In an area with, say, a 6.53% cap rate for my kind of land, a 5.55% annual tax on its full market value would be equivalent to an "85% LVT".
Seriously man -- my property value just about doubled for no particular reason (well probably mostly COVID actually) over the past two years -- 5-6% of it would be more than my total income some years.
Do you really think that the current situation would have been improved by half of the people in the country losing their homes and having to move due to taxes?
Even assuming that Georgism could somehow work in a well-behaved steady state economy, that does not seem to be the timeline we're in -- I feel like you need to think a little harder about the resilience of this system in times when things don't go so smoothly.
> Do you really think that the current situation would have been improved by half of the people in the country losing their homes and having to move due to taxes?
No I do not want to kick half the country out of their homes overnight. The transitional issue is a big thing to talk about and the subject of future writing.
In this comment I am explaining merely that we are not proposing to tax literally 85/100% of the value of one's land every year, as some seem to believe.
The immediate policy proposal I would push for is to take existing property taxes, raise the exact same amount of money, but from land and not buildings, and don't change the overall rate of tax. What comes later should come gradually and carefully and certainly not overnight.
I'm not talking about the transitional issue though -- it doesn't seem like this would have unfolded differently if we'd already somehow gotten to a nice steady state Georgian system.
Demand for land has suddenly jumped in many areas, resulting in the value of the land dramatically increasing. Some (rich) people have the money to pay for it -- I guess they still would under Georgism, so while "half" is an exaggeration I guess, it would still be a lot of middle class people losing their homes to rich people in this kind of event.
That doesn't seem like an acceptable failure state to me.
Broadly, life at the margin is *always* gonna feel lousy; the gist of the georgist paradigm is that we should do more to strike at the juicy center, and thus relieve the desperation experienced by so many
If your land value doubled without being more productive at the same time as masses of cheap credit flooded the system I think that's some decent evidence that the price was driven up by speculators. A LVT would make land a much worse speculative asset and so your land value might not have gone up at all.
What evidence do you have that this has anything to do with speculators? Lots of people in my area have chosen to sell their houses, and the buyers move right in -- they don't appear to be driven by speculation in any meaningful way (and are nice people).
I'd go so far as to say that if they are speculating they are pretty dumb, as this seems likely to be at least a local peak (or plateau at best) in prices.
It did become more productive at the same time - the growth of the employment opportunities around it made it much more attractive for housing highly-paid workers, that's pretty much the definition of "productivity" for housing land.
In economic terms, housing a $300k-earning Silicon Valley developer is ten times more productive than housing $30k-earning janitor, so Georgian "most productive uses of land" means as much gentrification as possible, removing the current "stickiness" of housing where poor people can afford to stay in neighbourhoods even if there is demand for richer people to live in; a proper LVT will make it economically prohibitive for them to stay - which may be considered good or evil depending on your political opinion.
Well one of two things is happening in your area. Either this rise is driven largely by the speculative advance of rents, in which case one can’t actually currently extract rent commensurate with the increased price, or it’s driven by a true change in the underlying land value in which case rents will increase exactly in line with land value.
In the first instance a LVT would prevent an abrupt rise in speculative rent as there would be no anticipation of profiting off of future rent increases. In the second situation it seems that you are willing to ignore the plight of current tenants who will be evicted if they can’t pay the increased rental value to make current landlords even wealthier.
Under either a LVT system, or our current one people are going to be displaced by a rapid doubling of land values. The only difference is who those people are, and whether the added value is collected by society as a whole or a few select individuals.
I guess it's the second thing (as I've said below the people buying up neighbouring land don't seem to be speculating, they just have a lot of money and want to live in a nice place), but in this case the "underlying land value" is being driven up by increased demand; nothing has changed about the land or it's productivity.
Rents have indeed increased, although not proportionately as many landlords have owned the land for a long time and value good tenants more than squeezing out maximum profit -- this doesn't currently matter to me *because I am not renting*; anyways, in a Georgist system it seems like the situation would be strictly worse for tenants, as landlords would be forced to immediately raise rents in lockstep with property values -- resulting in tenants also being faced with unaffordable increases.
>Under either a LVT system, or our current one people are going to be displaced by a rapid doubling of land values. The only difference is who those people are, and whether the added value is collected by society as a whole or a few select individuals.
Well the people being displaced in this case would be "everybody who lives within ~50 miles of me and is not already rich enough to afford a near-doubling of their housing costs." We would all have to move to some concrete pods in the nearest big city I guess; "who, whom" is not a convincing counterargument for very many people facing this situation.
If you couldn't afford the LVT on your land it means that you aren't making efficient use of the land and thus it would lead to more efficiency if you were forced to sell
They definitely need to find a way to talk about the differences because I am still confused. The cap rate is what is nagging at me, because you are going to have to revise that over time, otherwise the valuations are going to be out of sync with changes (e.g. new people moved in, there was a new housing development, new school needed to be built, roads were bypassed, etc.)
The land rent versus land value seems a bit circular as well; the value of the land depends on location (city versus rural) and what can be done with it (forestry, housing, industry) and thus that sets the rent that can be extracted from it, but then we're using the rent that can be charged to set the value of the land. That is a bit like saying "the rent for the skyscraper next door is $1,000,000 so the value of your land with one family home on it is also $1,000,000 in potential rent, pay up!" and I'm going "no, I can't afford that, I'm not getting $1,000,000 in rent!"
> the rent for the skyscraper next door is $1,000,000 so the value of your land with one family home on it is also $1,000,000 in potential rent, pay up!" and I'm going "no, I can't afford that, I'm not getting $1,000,000 in rent!"
Then you must get a higher-paying job, or move somewhere cheaper. Society as a whole benefits.
(living as the only tenant of such a desirable piece of land is a lavish luxury. it denies hundreds of others the right to live there at the market rate. why should you be entitled to such wealth? you did not create it. nor did you purchase it: the land was cheap when you purchased it, because the wealth had not been created yet.)
The slave owner comparison doesn't ring true now, but it's baked into the context of George's work. After the Civil War the slave owners became landowners, and the lot of the laborer was scarcely improved for a long time in many parts of the country.
The comparison is somewhat alarming to our eard after a century of regulations easing this tension, but at the heart it is true that land ownership ultimately is derived from violence.
Land value tax is not a land acreage tax. Your 9 acres of forest would probably get a tax cut :)
Well, no. Slave-owners were almost definitionally land owners. There were some who rented out slaves, but as I understand the demographics, the vast majority of enslaved people worked either in the homes or fields of their owners. And I'm going to resist the urge to derail into a discussion of the massive difference between being someone else's property and not being someone else's property, but it's more than a 'scarce improvement'.
The condition *was* scarcely improved for "a long time" for former slaves as reconstruction failed. 50 acres and a mule never came. But yeah we don't need to derail - i agree that the chattel slavery is worse than sharecropping (although Henry George was more skeptical in some respects!)
My acreage, and that of my neighbors, especially the large garden 503c3 literally next door, are here because we are carefully manipulating local and regional politics to prevent density and development.
the land ought to be put toward its most productive use, but that doesn't necessarily mean density and development. With the proper taxes and subsidies in place, forests and nature preserves can be the most productive use of some land.
So, where I was mentioning "running out of goodwill"? This is why, this is it.
* The Georgists make an assertion about their idea,
* then then someone says "but what about (protecting local neighborhood character, green space preservation, dislocation, Carl Fredrickson, parkland, reforestation, why build at all, etc)",
* then a Georgist responds "thats bad, and doing the sorts of things you are doing should be punished",
* then another says "wellactually, we can add doing that thing to do that good thing, as a epicycle to the foundation of Georgism, after making everyone spend political and finantial capital to relitigate it all over again, but thats ok, and it's still Georgism".
Right....
Or, from another framing:
I say "we are carefully manipulating local and regional politics to prevent density and development" and I'm told I'm bad. Someone else says "we can use the political process to protect greenspace and quality of life", and they are told that is a good use of politics. I don't see the difference.
I don't know if that's Georgism or just, like, the nature of discussions on the internet. Which, yes, requires a very large supply of goodwilll. I'm not a Georgist, so please don't let your frustrations at me deplete your goodwill toward them.
> Me, I will sit back on my 9 acres of forest with no neighbor sightlines, my trees slowly growing back after being clearcut three times in the past 150 years, and wish nothing but malice on this idea.
If they are your trees and you live in a non-urban area, as you surely do given you have 9 acres of forest, then you are probably going to get a tax cut on your current property taxes because your land isn't particularly valuable. So by all means keep the trees.
Currently we are clear cutting trees left and right to make room for more suburban development as cities sprawl out further and further because current land policy incentivizes this. Policies that encourage greater density *PRESERVE* the wilderness for people exactly like yourself.
And if you want to support a tax on the permanent degradation of land value (such as clear cutting an old growth forest) I propose you look up Severance Taxes, which are another policy Georgists support.
At least until it becomes the next Jackson Hole and you get chased out, or the timber eventually becomes part of the value of the land and you can't afford to keep it...
Though to be fair a number of the epistles added to resolve obvious issues, such as severance taxes, do seem independently like good ideas, regardless of my distaste for the LVT.
All the more reason to support policies that support densification and limit sprawl so the city doesn't splay out in all direction swallowing up wilderness?
My "land value", not "improvement value", will rise over time, because me and my all my neighbors and the entire region, as a matter of decision and policy, are encouraging as many trees as possible to grow back, and stay grown back.
Similarly, myself and many of my neighbors are actively engaging in medium and long term projects to remediate and repair soil drainage and soil fertility damage. (Soil is not free. You have to *grow* it, like any other agricultural good.)
If Georgists are going to come up with a way to start calling standing trees and soil "improvements" instead of "land value", well, I've not seen it clearly articulated in these essays. And this will be one of the myiad ways your beautiful theories will break in the forges of actual politics.
If you want to advocate for nature preserves there are many Georgists, myself included, who would gladly join hands with you on this project. I would be happy to write a "Does Georgism mean we should pave the earth" follow up (to which my answer is no) if you like.
If forested land is cheap, why wouldn't loggers buy it all to clear cut it? If land is expensive, then we're back to the same problem. I know you've talked about additional rules (severance tax, etc.) to remediate the problem, but I am tending to agree with the others that are calling that kind of solution an epicycle, with all the related negativity that entails. If the theory needs a few dozen non-intuitive solutions to fix it, perhaps it's not a great theory.
I think calling it an epicycle comes from a misapprehension that Georgism = "LVT is literally the entire theory" and not "Georgism is a philosophy that believes that hard work and investment should be rewarded, but passively collecting income from the mere ownership of uncreated pre-existing resources should be taxed and distributed among the people." It's the latter from which all policy prescriptions, including both LVT and severance tax (the latter is literally LVT, but applied to depletable rather than non-depletable resources).
> If forested land is cheap, why wouldn't loggers buy it all to clear cut it?
Forested land is cheap right now! And it IS being clear cut! A lot! The argument being made is that if it was more expensive to hold onto it, the profit motive to clear cut a whole bunch of acres of it out in the wilderness goes down, not up, especially because you must additionally pay transportation costs to bring it to market which scale with distance from population centers. While land is cheap and free to hold, this wasteful activity remains profitable. (Remember, it's urban land that is the bulk of all land value).
So here's the basic argument, severance taxes aside for a moment. Investors optimize for maximum return on their money. If land/resources are cheap to hold, it's always a better return on your investment to just *GO GRAB MORE* land/resources than it is to make the best with what you already have. Under the status quo, the incentives are misaligned: "why care if I denude a site forever? There's another set of trees over there to cut down next. The long term costs are somebody's else's problem."
We can fix this if land/resources are expensive to hold and the amount it costs to hold is proportional to what you could expect to earn from not investing in making that property more *continuously* productive.
This is because NOW you will get the best return on your money not by going further and further out and clear cutting as much virgin material as you can (as is currently more or less the incentive), but by carefully cultivating whatever you already have, increasing its fertility, increasing its yield, and ideally increasing its long term value.
I will note that increasing amounts of America's farm land under the status quo system is in the hands of giant agglomerated agribusinesses that are behaving in exactly the opposite way -- optimizing for short term gains with low capital investment, with little investment in improving the long term yields of their croplands, massively relying on cheap fertilizers and petroleum inputs and blanket pesticides with heavy externalized costs, eroding topsoil and all that bad stuff, all because they DON'T want to invest more capital per acre, and they CERTAINLY don't want to invest more labor per acre. The trick is to get them to invest more capital and more labor per acre by taxing away the free gain they get just for excluding others from using a bare patch of dirt.
This is where the question of short versus long term exploitation of the land comes in.
Okay, so if you buy all that, then we get to the question of incentivizing proper stewardship. Assuming you're with me so far, great, now you're forced to make the best use of the resource nodes you already have rather than just lazily grabbing more, eating the tasty middle, and throwing the crust away. But does this mean you're going to strip mine the ever loving hell out of it and totally permanently destroy that value forever?
If there's a chance a form of exploitation can damage the long term value of society's land and resources, then that is bad for society and we should prevent that. Severance tax fixes this by making it so there's not a lot of profit in just extracting resources, and making sure society as a whole benefits from that resource extraction if and when it does happen. This is where some bring in "but we do want to exploit some resources, and Bryan Caplan's article points out why this scheme discourages them!" To which I bring up the case of the very Georgist -- and extremely successful -- Norwegian Oil exploration system that threads the needle about as well as I've ever seen. In short, they directly incentivize exploration and innovation, and massively tax passive extraction, among a few other policies.
This brings us naturally to the critique of "epicycles."
You said:
"If the theory needs a few dozen non-intuitive solutions to fix it, perhaps it's not a great theory."
Sorry to be pedantic, but I absolutely don't see where we've added a "few dozen" non-intuitive solutions. That suggests 24+ non-intuitive solutions, and that's nowhere near what I've proposed here. Perhaps you were speaking figuratively and meant more like 5 or 6.
LVT and Severance tax on depletion, as I have discussed here, are two solutions.
If we add Norway's direct incentivization of exploration/discovery of oil resources, that's three solutions.
ALL of those are intuitive (at least to me), and more importantly *naturally flow* from the same base principles -- that we should reward hard work and innovation and investment, and we should punitively tax passive extraction and collection of income that derives simply from excluding others from the natural bounties provided by pre-existing nature, which no human hand created or can create.
That said, I totally get it if this is unintuitive to you and it just doesn't make sense or you frankly think it's all a bunch of made up nonsense.
My point is just to make it as clear as possible what I am actually in fact saying.
As a final point -- if I grant that there is indeed a non-intuitive epicycle or three here, I wonder if this is an isolated demand for rigor. You could help me by telling me what policies you support, what aims are they meant to achieve, and do you believe they have a greater or fewer number of non-intuitive epicycles assisting them?
I'm sorry if I came across as snarky. I do appreciate all of the effort you have put into researching this. My remark about epicycles is not only a response to you, but many Georgists over the last week who have responded to some pretty significant concerns with adding layers on. That's not necessarily a bad thing, but the simplicity of "build a Georgist system and the incentives will fix X, Y, and Z automatically" isn't the reality.
I'm going to cut back on my posting on this subject, but I'll just say that you've convinced me that land taxes are better than property taxes that also include buildings. I'm not sold on Georgism, but I'm at least open to some parts of it.
Hey, thank YOU for putting up with me. I know I come on a leeeetle strong. I really don't mind people kicking the tires, in fact that's exactly what I came here for. If I'm wrong I wanna know about it now!
Do you have a mortgage, and if so are you okay with continuing to pay the bank for the same land which you will now be paying government for? It seems to me that if the government is going to claim all land through an 85% LVT, part of this must involve making sure that the loss falls proportionately on homeowners and banks.
So in my case my mortgage is currently 50% of the total value of my property, so the bank and I should lose the same amount. Based on some earlier numbers land is 70% of the total value, so if my property value falls to 30% of the current value, the mortgage should also be reduced to 30% of it's current value. To not do this means homeowners will be paying twice for the same land, as we will have to continue paying the bank for the land we purchased but now belongs to the government (i.e. the "income" belongs to the government), and simultaneously start paying the government for the full "income" of that same land, despite the bank owning half of it.
Splitting the loss this way will prevent most homeowners from being forced into bankruptcy, as they will now be paying LVT instead of mortgage rather than on top of mortgage payments. It will of course be very bad for banks, but no worse than it is for homeowners. To not do this type of split will still be bad for banks as the wave of foreclosures on bankrupt homeowners will be devastating for the banks as well, as the loss of regular payments will be difficult to make up through sales of foreclosed properties when most of the population who would have been interested in buying is recently bankrupt.
What, if anything, are your actual empirical objections to the factual claims made? As far as I can see you are just responding based on tone, which isn't especially helpful.
I don't think he's responding based on tone, I think he's responding based upon his perception that this will be bad for him personally. And he very well might be right about that. Even if Georgism would be a huge benefit to the country as a whole it's still going to have winners and lovers line any other major policy change. We do ourselves a disservice by pretending otherwise. Sometimes the right answer is "yes this would be bad for your particular situation but the overall benefits outweigh that, tough luck"
Sounds like yet another tool for deplatforming, and for sending a howling mob of paid lumpenpoles to riot as someone's home. I'd prefer real estate non-disclosure laws to be tightened up, instead.
But then, I would guess that Georgists are also fans of the recent proposal that every bank be required to send your entire checking and savings and loan account transaction history to the IRS every year. "For transparency" from "tax cheats".
> But then, I would guess that Georgists are also fans of the recent proposal that every bank be required to send your entire checking and savings and loan account transaction history to the IRS every year. "For transparency" from "tax cheats".
Actually we are completely against this and want to eliminate income taxes.
Huh? What do price records have to do with deplatforming?
> required to send your entire checking and savings and loan account transaction history to the IRS
I've had many issues with the Georgists but the advantage of taxing land is that land records are public and have to be public and are already public. ("Who owns this land?" must be answerable for every acre in the country.) And no one needs to know or care whether you've built a mansion out of gold or a shotgun shack: LVT doesn't care about the buildings.
"Who owns this spot of land right here" does needs answering for each parcel. That's what the county recorders office is for.
"What are all the parcels owned by John Smith, and how much did he pay for each of them?" does not need answering by any rando, least of all by "researchers", or by any of John Smith's neighbors, or by anyone who gets annoyed by something that John Smith posts to zuckbook.
All that is necessary for researchers is records of the latest market selling prices of these properties. Who owns them is not necessary to know.
Further, to levy a tax all that is necessary is to kindly ask that whoever owns this land step forward and pay the tax once a year. If you insist on a privacy preserving way to do this I'm sure one could be worked out.
You may be surprised to hear that most states in the union already have open real estate records for anyone to look at, do you see the negative effects you are predicting in those states? Are any doxxings the result of public real estate records? Or are they the result of things like phone books and other records, which make it trivial to find the addresses of people in all 50 states?
I know this is not constructive, but after reading through all of these threads, your name stands out as constantly posting the most idiotic bullshit. Any single one of your posts chosen at random is dumber than every other dumb post combined. Are you mentally retarded?
I think there is an interesting question that goes unmentioned in this series, which is, what is LVT today?
We can tax every component of national income: labor income, income from capital (dividends and interest), and land rents (implicit or explicit). Here in California, labor is subject to a 50%+ marginal tax rate (state and federal), although your average rate is probably closer to 30% even if you have an above average income. Taxes on capital income (dividends, interest, etc) is maybe in the same vicinity, it’s trickier because you have two layers in many cases.
Ok, what is the effective tax rate on income from land? We care most about land in the really expensive urban areas, the red dots on the first map. California is a good place to look - although note that the high value parts of New York are similar.
I would submit to you that a high estimate of the current LVT in California is 0%. If you live in your property, no matter how palatial, you are exempt from tax on (imputed) income from that property - that is, the rent you saved. (You might be subject to some tax if you are a corporation but you have depreciation allowances and 1031 exchanges and other exemptions so it’s not so terrible even then.)
You are responsible for property tax, but because of Prop 13, that is effectively 0 for a large percentage of homeowners, because it is pegged to the original price from decades ago. (You can verify this by clicking around on Zillow - it’s all public info.) Even if you bought your property more recently, it is not terribly high. So 0% + 0% = 0% (granted we are rounding).
But that’s not all. If you own urban land, you get tons of public subsidies that are not readily apparent. For example, the mortgage interest deduction allows homebuyers to pay more for a house than they otherwise could have - and economic theory dictates that this government money just ends up in the pockets of landowners, since supply is fixed and so homebuyers just ending up using the money to bid more for the properties available.
More importantly, landowners today control how much housing can get built - they can veto their future competition, new construction. If you own a burger joint and say that you would like power over how many other burger joints get built in the city, you will get laughed out of the room. That would be a huge public subsidy to you, because of course you will say that zero other burger joints can ever get built so you can gouge the hell out of anyone who wants a burger. The public subsidy goes directly from the diner to you in the form of inflated prices, without ever passing through the government, but it is clear it is a public subsidy - the government is making a special allowance for you to steal extra resources from society.
I hardly need to point out that big city local governments are controlled by wealthy property owners who (surprise surprise) determine that the optimal amount of future housing construction is as close to zero as possible. (I realize development restrictions are bad for some subset of landowners with underdeveloped properties, but I think you can see that development restrictions are extremely good for landowners *as a whole*. That’s what you see with Rognlie’s chart that shows housing rents as a % of national income going from 3% - 10% as development restrictions came into place.)
How much are these subsidies worth? Again, very rough estimate, if Rognlie thinks that rents doubled as a % of national income, can we say that conservatively, government policy has doubled rents going from society to landowners? Surely in California it must be true. So maybe LVT is -100% on the lowish side? (Keep in mind these future subsidies are capitalized into the current price of land the same way future taxes would be if they existed - so the current observed price of land is really present value of land rents + present value of land subsidies.)
The marginal tax on labor is 50%, and the marginal tax on land is maybe -100%. The question I have is that as a democratic society, how in the actual f**k did we get here? Landowners? Who don’t do anything? They’re not building electric car companies or anything, they just bought a piece of paper.
What's crazy to me is that the discussion so far seems to imply we are considering going from like 45% to 85%, not from -100% to 85%.
Yet people just kind of accept what they’re told by landowners? “Oh, local control over development is great, there’s no conflict of interest.” “You know what causes high rent? Developers. Yes, just as surely as wet streets cause rain.” “Oh look, we’re building 5 units of affordable housing and preserving valet parking, we’re doing everything we can.”
I actually kind of buy everything in this series. We will be able to calculate land value (if we want to), LVT generally won’t get passed to renters, land is valuable (although be mindful that the current observed value includes future subsidies vs. the underlying land). But to me it’s much more interesting to understand how we got to a place in our democracy where we are still funneling so much public money to wealthy landowners, all the while enduring a housing crisis they caused by preventing housing construction.
(And full disclosure, from time to time on my linked blog I discuss things like this, but this is the general jist of it.)
“If you own a burger joint and say that you would like power over how many other burger joints get built in the city, you will get laughed out of the room”
There are definitely examples of similar arrangements today, and there used to be more, especially before deregulation in the 1970s - like airlines needed route certificates to fly specific routes, and they would never issue new ones, and airlines made a lot of money and flying was for the very wealthy. Modern examples include liquor licenses, taxi medallions (until recently), sure, hospitals. But I think that's where history is helpful, in every case, once you got rid of those systems, prices go way down and shortages disappear.
Today you can basically open up a new business without permission in the vast majority of industries - you can start your own software company or t-shirt company or laundromat or whatever. And the industries where you can't do that, you see a lot of high prices and consumer dissatisfaction, housing being a prime example.
Of course, in San Francsico (the capital of rent-seeking), you do actually need the permission of all the surrounding businesses and residents before you're allowed to start up a business.
As for your question “How did we get here?”, I don’t have a good answer, but I have an anecdote.
In the small town where I live in the Shenandoah Valley, the county can’t get a new courthouse built despite being under a court order to do so (because apparently the existing one is unsafe) because of historic preservation laws. And it’s not just the handful of people in the historic presentation commission - when they submitted a design for a new build, yard signs protesting it popped all over town in a matter of days. And now there is controversy about them moving the court to a different town entirely! There was already one referendum about all this that vastly favored the status quo.
This is emblematic. The historic preservation laws drive up renovation costs in residential property, which means that renovations cater to the high end market to recoup those costs, and then the city provides a tax abatement for 7 years (!), only charging tax on the pre-improvement value of the home, which may be a difference of $100k’s! So they forego affordable housing *and* tax revenue! All this to save old buildings, most of which have no historic value other than their age, and many of which are really dilapidated, if not abandoned.
I can only assume that the people who favor this arrangement don’t bear the costs, or bear them indirectly enough to not care. They already own their homes, often outside the preservation districts, and mostly visit the (relatively) successful downtown core, not the run down areas. At shy rate, this genuinely seems to be what the organized, voting portion of the population wants. I guess the people bearing more of the costs misidentify the problem and/or vote for the alternative with their feet.
I guess another alternative is that we actually live in something approximating the best of all possible worlds, and what we see as inefficiency, irrationally, and injustice is actually a necessary, ugly compromise for preventing a large, complex, messy system from imploding.
The alternative is possible but then doesn't really explain why this anti-development stuff is so restricted to a handful of wealthy major cities, mostly in English-speaking countries. Japan apparently doesn't have a lot of building restrictions, same for a lot of European countries, you can build what you want in Houston, and really in fact most of the South and Midwest. But you look at the UK, the coasts of the US, some cities in Canada and Australia, it's totally different.
I think your anecdote is a bit closer. The beneficiaries really care and are well organized but the people who are harmed either are diffuse and ignorant (and lied to) or otherwise have no power.
The people who are really harmed if San Francisco doesn't build housing are the kids of people in say Boise who can't move there after graduation and get high paying jobs and network and learn skills. I doubt anyone in Boise knows that, or would even believe that if you told them.
Everyone always points to the 60% of the country that owns their own homes so maybe that is it - but really these policies mostly benefit like the top 5% that own homes in these urban markets, and are probably a net loss for homeowners in the middle of the country whose kids will have to find a way to pay up for that New York apt if they get a good job there.
"The people who are really harmed if San Francisco doesn't build housing are the kids of people in say Boise who can't move there after graduation and get high paying jobs and network and learn skills. I doubt anyone in Boise knows that, or would even believe that if you told them."
And I would say that the harm is in not building up something in Boise that can be comparable in excellence to San Francisco.
It is physically impossible for every single person in the country to move to San Francisco to get "high paying jobs, network, and learn skills". Even if we assume only 10% of this year's high school graduates are smart/talented enough to get a "high paying job" in San Francisco, that can't happen. No matter how relaxed your zoning laws so that there are multi-storey apartment buildings on every square inch of land.
The real damage is in making San Francisco or any other major city a bloated megapolis swallowing up talent and hollowing out the rest of the country. Build up Boise into a major city with high-paying jobs for the talented, and San Francisco doesn't have to try fitting a quart into a pint pot then.
I think the idea that we can somehow build up every third-tier city to compete with megalopolises is a far-fetched one, at least for now. You run into this agglomeration effect problem. People want to live where there are a lot of jobs to choose from in their industry. Employers want to locate where they have a lot of potential employees to choose from. They also want to locate near their suppliers and customers. But then on top of that young people want to live where they have a lot of potential mates to choose from (perhaps one that works in another industry). Different creative industries want to be close to each other to share ideas. Highly dense cities can uniquely support cultural amenities like Broadway. And so on.
When you look at any wealthy country today, it tends to be dominated by a small number of big cities. Something like half of Japan lives in Greater Tokyo or Osaka (admittedly broadly defined). It's nice to say that people should want to live in Boise but people vote with their feet. I don't see any point in pretending these greater economic forces don't exist - proximity is productivity.
I also don't agree that it's physically impossible for everyone to move to a major city for part of their lives, if they want to. I think it's already possible. SF, LA, NY, DC, Boston, combined is already maybe a quarter of the population (if we consider the entire metro areas)? So if everyone wants to spend 10% of their lives in one of those cities, I don't think that's an issue. I don't think you have to be smart or talented enough to get a high paying job to want to live in a big city, at least for a while. Normal jobs in those cities pay a lot more than normal jobs in other cities, and it's not just a function of rents, it's a function of being close to rich people who can pay a lot more for local services. For every software developer, a city needs teachers and doctors and baristas and policemen and so on.
My alternative explanation is extreme, and the truth is probably somewhere between “people are uniformed / lied to / powerless” and “this is actually the best way to balance lots of competing interests”.
But I see no reason why the situation in, say, SF should be similar to Houston, Japan, or Canada. Different history, culture, interest groups, etc…
It looked from the article like legal restrictions such as historic preservation laws are part of the land value calculation. Such a plot would presumably have a significantly reduced land value because nothing else could be done with it other than historical preservation?
The whole context of your post is contrasting "society" and "people" with "landowners". I feel that this is a fundamentally wrong perspective, a false dichotomy. The USA home ownership rate is something like 65%; in general, society and people *are* landowners.
Any solution that looks at the interests of the 1/3 of society who are renters and fails to protect the interests of current homeowners cannot be described as helping "people" or "society" as it ignores most of them.
The way I see it, society is already looking out for the 2/3 an awful lot more than the 1/3. (and the resulting pressure from people crowding to get into that 2/3 has already collapsed the world economy once in my lifetime)
I should have probably said "wealthy big city landowners" instead of "landowners". Yes, 65% of Americans own land, but most of them own a negligible amount (at least financially).
This is visible in the graphs on the first post, but basically if you own a median home in LA or SF, you probably own $1 million of land, and if you own a median home in the middle of the country, you might own $20k of land. Really we are looking at the interests of 5% of society, not 65%. Even within these big cities, the homeownership rate is really low - like in SF maybe 35%? - and big cities are significant but not that big a % of the populations. Like the entire Bay Area is 6 million out of 330 million Americans. LA and NY are more like 20 each, but those include less wealthy areas.
The median home is something like $300k now, and that's mostly the structure. I think the first post had a chart showing that outside the biggest cities, real estate value is mostly attributable to the structure. You can verify this by looking at Zillow, or even the income statement of a publicly traded homebuilder.
I think this runs into the same problem as the Republicans who get everyone into 401ks and declare that since everyone is a stockholder, corporate tax breaks benefit everyone.
Truly, I am probably fine with tax breaks for the vast majority of small landowners in America, this is not about them at all. We can have a graduated property tax or land tax in the same way we have a graduated income tax or capital gains tax.
The far left of the curve for "paid rent property owners" are REITs, which are then themselves finantialized and trading on the open market, which means in practice they are owned by the 401K funds, which means in practice they are owned by the set of all the average employees saving for their own retirement.
Yes, yes yes, "Bill Gates farmland". Bill Gates is the primary investor in a handful of REITs that own that farmland, and they lease that land to a handful of giant agricorps, who pay the "rent" by putting still remarkably cheap food in grocery stories. And most of these companies are finantialized, and thus mostly owned by 401Ks themselves.
There are no "money bins", there are no mustache twirling greedy landlords, and outright real estate hold to sell speculation is in a handful of toxicly dense and overly blue cities. The vast majority of "the wealth" in the US is third hand owned by the bulk of the population, investing in their own retirement.
I think this whole conversation is really about the "toxicly dense and overly blue cities". That's where the bulk of the land value is in the US today, which I think the author showed on the first chart. If we just want to make a set of rules that apply to toxicly dense and overly blue cities and exempt everyone else, that's probably ok.
The landowners in these cities are a matter of public record, and they are very vocal and public about their views - see the comments by the SF Board of Supervisors. It is a lot of millionaire homeowners (I think even SF is 30%-40% that), and then also a lot of small landlords. Big REITs like Avalon and Equity own a small # of units (I would guess no more than 10k-20k in a city like SF that has 300k-400k) they are very open with shareholders that returns depend on blocking future development but they generally try to keep a low profile.
Wealth in this country is very unevenly distributed (at least relative to income) and so most stocks (including REITs) and bonds are held by the top 1% or 10%. I think the top 10% own 70% of all wealth and 90% of stocks now. Land is not a heck of a lot different. I'm not trying to solve this problem (to the extent it is a problem), I agree we are probably not concerned about Bill Gates's farmland. But there is no reason to cater to a couple of million landowning households in blue cities at the expense of the other 120 million households in this country.
Honestly, fuck the "toxicly dense and overly blue cities".
If they are so allocation dysfunctional they need Georgism, they can have it, as long as they stop thinking that particular variety of political chemotherapy should be forced on the rest of the country.
That is, of course, really the fundamental problem with the toxicly dense and overly blue cities", is they seem unable to NOT want to force their problem causing "solutions" on everyone else not like them.
The point Philo was making above is that most of the harm of this policy falls on homeowners in or near large "overly blue" cities, so apparently both sides of this debate are happy for us to suffer, but perhaps don't blame this policy on us when we'd see the largest losses from it? I assure you we'd be some of the most opposed to Georgism as we'd face the largest LVT payments, certainly not the ones forcing it on the rest of the country.
It doesn't look at the interests of 1/3, it looks at the interests of everyone who is not a speculator. That is the interests of 99%+ of the population. Short sighted people who expect to profit off of home ownership rather than expecting to have a place to live are not actually harmed by an LVT, they just perceive it as harm because they look at the speculation they lose to LVT, and ignore the gain they get from their other taxes being removed.
My cliff note summary of my reaction to this set of articles (and even more the comment responses):
One: The eminent domain example is not as useful as commenters pretend. Partly because it requires compensation, partly because it's extremely rare and partly because any attempts to use it for economic development have produced massive backlashes. Yes, the Supreme Court upheld the right to do so in Kelo, and then the President signed an executive order saying 'we won't do it at the federal level' and 45 states passed laws saying they won't do it at the state level. People don't appear to agree that this sort of action is in fact moral.
Two: Despite the many problems with the current housing market, approximately 65% of Americans live in houses owned by a member of that household. It therefore seems likely that people are not going to support this in large numbers, or at least in any actual majority.
Three: I realize Georgists appear to really like the abolitionist analogy, but it doesn't work and is deeply stupid/offensive to normies (and, hey, me too).
Yes, Georgism has a ways to go as far as working out how to convince the general populace. A big problem is that there isn't really any special interest group that would greatly benefit from its implementation- it benefits nearly everyone, but that benefit is spread out pretty equally. Making people see that benefit though, particularly after so many years of pounding into people's heads the idea that "landownership is the key to social mobility and economic stability" is the hard part.
As far as transitions and compensation goes there is certainly a good case to be made. It is not reasonable to punish people who have simply done what the system incentivized them to do, and I have no interest in doing so- all I want to do is change the system, so that in the future it can run on a better, and more just, basis.
And also it's just reasonable politics, so there's that, and Georgists will have to recognize it if they want to get things done.
Well, to be clear, I don't think this is a problem of people being unable to identify benefits. But rather, the total denial of the existence of any non-transitional costs. On the economics, I totally lack the understanding to have a hard position. But, here's the thing, as a general rule people don't like it when they (or other people that they like) are forced to leave an area.
I have a lot of problems with the general narrative around gentrification, but my sympathies are generally going to be with the person who is being forced out, not the economic damage that they're doing by viciously being poor and trying to live in the same place they always have. And I do not believe I am incorrect in that and I do not believe there is an economic argument you can make which will make me incorrect.
The Georgist argument is that the confiscation of land rents is what is making them poor in the first place, so really you are missing the point. Is there a cost in transition? Yes, absolutely. But you can't hold reform hostage to the status quo simply because it has a cost- everything has a cost. The question is whether the benefits outweigh those costs, and the answer in the case of Georgism seems pretty clearly in the affirmative to me.
And my response is that I do not believe it is correct that you've found the one weird trick to solve poverty, which has never successfully been used by anyone ever. If you want me to believe that then you're going to need some actual real world examples where it's brought in and sticks around, not a couple of academic papers. And I'll argue like hell to make sure your experiments take place a long fucking way away from me.
Wolf Ladejinski, the economist in charge of overseeing land policy during the economic reconstruction of Japan and Taiwan, was a Georgist and implemented Georgist policies in those countries. Singapore is run along largely Georgist principles, as was Hong Kong up to the late 1990's. New Zealand and Australia had significant land value taxes during the 20th century. While no place has ever switched solely to a single tax, we have pretty good empirical evidence that it works, and at the very least good evidence that it doesn't wreck economies- all of those cited are widely agreed to be very livable places. If you are unwilling to engage with either evidence or theory because you have some intuition or economic incentives you refuse to renounce, there's not much anyone can do for you I suppose.
Hang on...Hong Kong, Singapore, new Zealand and Australia have solved the problem of poverty? My goodness, that's good news!
Wait, no, except for Singapore (which has a bunch of confounders) they all have poverty rates in the same range as the U.S.
This is what drives me up the wall about this sort of thing. If your argument is, 'hey, we think this is a better way to allocate taxes, let's focus on the value of your land + your neighbors improvements rather than your improvements,' that's basically a fine argument that people can accept or not. But instead it comes bundled with this notion that it's going to solve a bunch of problems that it demonstrably does not solve in the places it has been partially implemented.
Also, if you're actually seeking to convince people in any numbers, suggesting that they hold their beliefs because of economic incentives is not generally going to be a successful means of argument. And, oh boy can it come across as condescending and offensive. Especially since a cornerstone of your argument is that your position will be better economically.
But to be clear, the incentive I refuse to give up is two-fold and neither is economic (I do own a house, but I'll be fine either way, as I could continue to pay the LVT + mortgage without any major difficulty).
First, I disagree with the notion that it is improper to benefit, economically or otherwise, from luck/inheritance/the actions of others. What is improper is not that some benefit, but that many others suffer and there are better ways to resolve that. I have the incentive to continue to believe that the correct response to being lucky is to shrug and be happy that things broke my way. And when I'm unlucky to shrug and accept that sometimes that happens. Luck is morally neutral to me and I wish to keep it that way.
Second, in my view modern society already pushes towards fragmentation, separation, mobility and self-sorting which are antithetical to creating stable communities and stable-intra cultural/political groups. It appears to me that this proposal would unintentionally significantly increase that trend. The goal is to sort property and people by land value, which will inherently increase mobility and when people have to move, they will tend to move into like-minded communities.
A final point, I really love 'these places all HAD georgist taxes' as an argument for their greatness, rather than as fairly clear evidence that this isn't nearly as big a success as you're arguing it should be...
Neither Australia nor NZ's experience say anything interesting about Georgist policies.
Australia has land taxes varying from 0.5 to 2.5% depending on the state one is in and type of land (one's own home is usually exempt, rates usually rise a lot with property value with a generous zero bad at the bottom). I can't find figures for the total take as a percentage of *all* land value, but I'd eat my hat if it's even near 1%. Note that this is less than 100%, indeed less than 85%.
Thus you get a tax which is FAR away from the Georgist ideal, and comparable in burden to property taxes in the US, 'rates' elsewhere, and so forth.
Lars cites the 1% objection rate (of Australian assessments) as evidence of something. If I own $1.5M of land in Sydney (not my own home, and not counting improvements) it seems I owe about $11K in land tax. Is it worth fighting the government to tweak that slightly?
NZ eliminated its land tax entirely over 30 years ago, but had dwindled in important to a near revenue-triviality by the 60's or even earlier. It was never large as a percent of land value. I found citations to many studies that looked but could not find *any* of the hoped for positive effects, beyond mere revenue raising. The sources I find are inconsistent on what the rates actually were, but seem to be about 0.5 - 1% with many exceptions.
I don't believe it's fair to say that either place had 'significant land taxes' during the 20'th century (at least by Georgist standards), and all it really shows that 1% or so rate doesn't wreck economies. But a similarly sized local taxes based on land + improvements (traditional US property taxes, for instance) don't either, and at a low level is there really a huge difference?
People in places being gentrified are poor due to the system as it is. Those people are going to get kicked out of areas as demand for them increases under the status quo system just as much as they would under a Georgist system.
Georgism will ensure their descendants don't get kicked out of the next place they settle.
And local residents fight that, they don't support reordering society to make it easier to displace them if they happen to live somewhere that's becoming nicer. And they are right to do so.
But they are going to get displaced anyway. They can get displaced by someone rich who tears down their home and replaces it with another single family home, or they can get displaced by someone who is willing to build multi-unit homes so more people can live there.
Your argument might be valid when our population stops growing, but right now you're just saying that new people born into the world should suck it up and have a shitty life because that other person got there first.
Or rather, I'm saying that it is in fact worse to actively make people worse off than it is to fail to make other people better off, unless there are no reasonable alternative ways to make a larger number of other people better off. As I do not believe that is correct, I do not believe this is moral.
It particularly benefits the young and urban who worry that they'll never be able to afford their own home. (or rather that they'll never be able to afford their own home and also that homeownership is unfairly lucrative compared to other investments)
"It particularly benefits the young and urban who worry that they'll never be able to afford their own home"
Why would a Georgist system help them? The idea might be "a house in this area costs $X00,000 which is way too much, but if the land were taxed instead, the house would only cost me $Y,000 which is easily affordable", but in practice it is "the land is in a desirable area, that is why prices are high, so it is more practical to put up an apartment block here than a single house". Your young urban couple can have a flat, but not a house of their own, since wanting a house in the desirable part of the city is inefficient land usage.
If they want to move fifty to eighty miles away to buy a house on the cheaper (because less desirable) land, then they may be okay - but then we run into "nobody wants to live out the country with no amenities, this is *why* the land is cheap" problem.
As such a system matures, and a bunch of new apartment blocks are built, wouldn't the resulting lower demand for housing start to pull down land values? I imagine it would get to a point where building an apartment building of a similar size to existing ones nearby is no longer profitable, and it would start to become realistic to buy a house in some desirable areas (still maybe not right downtown). Wouldn't this effectively prioritize meeting the overall demand for housing versus individuals' desire for their own properties? I would at least support this in urban areas currently experiencing a housing crisis.
Neither of these options deals with why people want to live in the city to begin with. Lower prices in the city will increase demand, which will increase prices. There's still an equilibrium for as long as living in the city is desirable.
It seems to me that for all but the most famous/desirable cities (like London or New York), as housing capacity increases, there will be a point where the number of people who want to move in but cannot do so tapers off and/or crowding makes the area less of a nice place to live. Now I admit that stuffing every neighborhood with more people until it's a crowded mess doesn't seem like a great idea. Therefore I think some zoning will still be needed, but only to the extent that it prevents local services from being overwhelmed.
> so there's that, and Georgists will have to recognize it if they want to get things done.
Yes, my impression from the whole series is that I like an LVT more than I did at the start, but the Georgists are so annoying that it doesn't matter. They'll burn their allies instantly and make everyone else hate them, crying that they're being oppressed.
The reasonable Georgists should take the loudmouths into a quiet room and have a quiet conversation with them.
Perhaps we should, and if happened to be dictator of Georgism I should like to think that we would have better messaging! But as it happens I am- unfortunately- not. As it is I have to trust that people will be able to see past potentially annoying Georgists and weigh the idea on its own merits- which I suppose is a stretch of human nature, but I happen to be optimistic.
I live in a house I own. If you replaced my current property taxes with LVT at the 5%/85% level, my annual taxes would go down by more than two-thirds. 'twould be cool. Georgism now, because I would personally benefit.
The tax would be paid back out to people. People having such income would make them more able to afford houses, This means that your property value would go up. And you'd then pay more.
>So if the public accepts your valuations, and new market signals match your assessments, then they can be said to be accurate.
Feels like a big leap. People see their homes every day, invest into repairs, maintain them, are proud of them etc. Land valuation is a much trickier concept to somebody who bought a house 20 years ago, does not work in real estate, and likely barely understands the formula to begin with.
One general question about Georgism that I don't think I've seen an answer for:
At the end of the day, don't landowners make up the communities that their land value benefits from? If a thousand people build up a town on their own small plots, their land becomes more valuable, but each put in a small fraction of the effort that gave all of their neighbors' plots more value. Why should that be taxed?
I get the impression that Georgism want to tax away the valuable communities, business areas etc. that landowners, business, residents, and such because land is natural, but doesn't this land value ultimately derive from the labors put in by the community to build it?
I think I just fundamentally disagree with the moral premise here
No, that is actually the point of Georgism. Land values are created collaboratively by the community, but landlords take that value and expropriate it for themselves. The tax system then takes value that was created by individuals- their labor and investment- and takes that to use for social purposes. Georgists propose to remedy this.
"The tax upon land values is, therefore, the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by Nature be attained. No citizen will have an advantage over any other citizen save as is given by his industry, skill, and intelligence; and each will obtain what he fairly earns. Then, but not till then, will labor get its full reward, and capital its natural return."
But the landlords are the community!! At a local level, a city full of single family homes is full of people who own their own land, and at a broader level the United States you want to fund includes at least a large majority of the people who own land in it.
In contrast to the current Income Tax system, where everybody in theory chips in in accordance with their earnings and therefore ability to pay, Georgism seems to want the landlords to pay for the entirety of the system that everybody, landlord or not, enjoys. That doesn't seem equitable at all
The landlords are part of the community but they are not the community. Are renters not part of the community? They contribute as well! Furthermore, lots of landowners and speculators are in fact not part of the community. In many major cities large percentages of land is owned by institutional investors and absentee/foreign landlords. Blackrock buys up residential land for that exact reason: it can extract value from the community while contributing nothing.
Landlords in their capacity as landlords do not contribute. They contribute in their capacity as builders, workers, customers, neighbors- by providing products, services, and investment. Georgism does not penalize this- the current tax system does. Landlords extract that value while providing no service in return.
Let's look at it from a different perspective. Land is not a good which was produced by anyone, so Georgists argue it cannot truly be owned by anyone. Access to land is a common right, and so if you wish to own land and deny other people the exercise of their right you must compensate them the value of it. This is the land value tax- you can think of it, if you will, as a use fee.
"if you wish to own land and deny other people the exercise of their right you must compensate them the value of it" - but that is exactly what has happened; people have paid the previous owner or, originally, the government for their land, so they have compensated the society for those rights (perpetual rights!) at that point - or in some cases, gotten granted these rights (again, explicitly as perpetual rights) for various things the society considered desirable e.g. military service, colonizing the frontier, etc.
While all this land was common land, the society explicitly chose to parcel it and award it to people, and so returning it back to common land (if you'd consider that as "natural perspective") is taking of property for common good, and e.g. the US constitution explicitly asserts that the society *can not* take property back for common purposes without compensating the owner.
This is true on the frontier, which is why frontiers tend to be equitable and have good growth. Because if there are just a handful of us we can probably find 10 plots that are all relative equal in opportunity.
But as soon as the frontier no longer exists, all land is claimed, then there starts to be a gradient in land quality and eventually there is no land worth claiming, which means Ricardo's Law of Wages takes over and land lords can pay subsistence wages and extract rents from their economic activities.
Then most of the land value taxes from a city should go to the city and perhaps the county government, rather than a state or national government, right? With higher levels of government only getting tax on what would be value of the city's land as agricultural land. And if land values are higher in a neighborhood of a city, then the extra tax should stay in that neighborhood.
Doing otherwise would not only be unfair, but it would also make the tax no longer free of deadweight loss. Consider a developer who buys a large tract of empty or agricultural land, builds a town on it, then sells it off as small plots. If the new owners would now have to pay higher taxes in total to the national or state government than its previous owner, that would reduce the incentive to build the town.
Even if land value taxes resulting from the extra value of a city or a neighborhood would go to that unit's budget, I don't really get how this would work in the context of a new town or neighborhood. Would the new town be required to implement this form of Georgism? That may reduce the value the developer can capture by selling off units, thus disincentivizing the development. Or can it decide whether the new town is to implement Georgism or not (except that it has to pay the tax on its value as unimproved agricultural land to the state/national government)?
Scott got two pie-in-the-sky ideas, Georgism and model cities, that may be difficult to reconcile.
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Actually, if the proceeds of the tax on extra land value produced by the community remain with the community, that wouldn't work either. Rents in big, productive cities are high because many people want to live there: demand is high and supply is limited, so rents rise until only as many people are willing or able to pay them as there is space for.
Now let's say the city institutes a land value tax, and distributes the proceeds to the residents, including tenants, in some form (services, or cash outright). Now tenants are effectively getting back part of their rent. But this has just made the city a(n even) more attractive place to live! So more people want to move there, demand increases, so rents increase. The land value assessors eventually catch on, and raise the taxes. And so on. This creates a spiral where every increase in rent results in an increase in land value tax, and thus an increase in the value of the services financed from that tax that the residents receive, and every increase in the value of those services results in an increase in rent.
Georgism attempts to create a system where the effective rent tenants pay (that is, rent minus LVT redistribution received) doesn't increase as a result of land scarcity. But the effective rent increasing as a function of land scarcity is exactly the mechanism that's needed to create a market equilibrium.
In my city, around 55% of people own their own home and land, but 100% of the people in the city make up the society that is giving that land its value. Is it moral for the 55% to profit from the work of the 45% without reimbursing them?
Whatever value they provide to others, they are doing so voluntarily. That's another way of saying that they are already being paid the market-clearing price for their services. Trying to pay them more for their services would put the market at disequilibrium, and lead to weird effects—like what I described in the second part of my response to the comment above yours ( https://astralcodexten.substack.com/p/does-georgism-work-part-3-can-unimproved/comment/3984715 ).
That's akin to saying that serfs in feudalism provide value voluntarily and are paid the market-clearing price for their services. On one level, sure, but we can see that a feudal society is not an ideal state for most people to live in, and not one that results in most people prospering.
Similarly, in a society that is increasingly divided into those who own land and those who do not, with the "have-nots" growing in proportion, we start to see increasingly negative results, despite the "have-nots" having the freedom to take their services elsewhere.
In reality, moving to another city where you are also subject to being a renter isn't any more desirable, and at least you have your social connections in your current city. Extracting economic rents from society is pretty much an objective drain on society, and it is no surprise that as the burden of economic rents increases, we see an increasingly unstable and unhappy population.
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Your response you mentioned doesn't describe a bad society as far as I can tell. It isn't particularly horrific for a city or country to be so desirable to live in that people want to move there...in fact, that sounds like a fantastic place to be.
Serfs didn't provide their services voluntarily, because they often weren't allowed to move freely between landlords, and because all valuable land was owned. Now, I see at least a theoretical point in Georgism when it comes to taxing the agricultural value of land.
However, when it comes to providing extra value to city land by living there, that's voluntary. People can choose which city they live in, or they can live in a village with low land prices; they are (or at least should be) even allowed to buy cheap land in the middle of nowhere and start a new town.
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It's a good thing if a city becomes a more desirable place to live in. The problem is that I see no mechanism in Georgism that matches the number of people who want to live in the city given the conditions it provides to the amount of people the city has space for. The market tries to set what I called "effective rent" at equilibrium level, while the government tries to set it below equilibrium level, resulting in rent and tax spiralling towards infinity.
Ricardo's Law of Wages. Wages tend towards subsistence when land is not owned in common, because people can't use their own labor without paying a fee to a landholder.
Rent does take up an increasing portion of wages if supply of real estate is inelastic (fixed), and productivity increases. However, wages don't tend to subsistence unless demand for housing is very inelastic, or if landlords form a monopoly (unrealistic).
And the supply of city housing shouldn't be inelastic. If it is, that's because of restrictive zoning regulations. The problem of high rents would be largely fixed by relaxing those regulations; indeed, that's pretty much the only way to solve a problem caused by high demand and limited supply.
Zoning isn't the only thing that makes housing inelastic. There is simply a fixed amount of land area and often times not enough incentive to upzone or build more densely.
Ultimately, without a LVT, you end up encouraging sprawl and end up with these monstrous suburban metro areas like Seattle-Tacoma and Dallas-Ft. Worth.
> Zoning isn't the only thing that makes housing inelastic.
Yes, I meant that without zoning, it wouldn't be perfectly inelastic, not that it would be perfectly elastic.
> Ultimately, without a LVT, you end up encouraging sprawl and end up with these monstrous suburban metro areas like Seattle-Tacoma and Dallas-Ft. Worth.
Without zoning, but without an LVT, there is an incentive to build more densely if that's the optimal thing to do. LVT doesn't change what's in landowners' best interest in this regard. It may make it harder for landowners to go against their own interests and use their land inefficiently without going bankrupt, but it's in landowners' interest to use land efficiently either way, and I'm not convinced they aren't generally doing so when legally allowed to.
I'm not even sure what's wrong with urban sprawl. What *is* wrong is if people live in far away suburbs, but commute to the city center daily, resulting in long commutes and traffic jams. This could be prevented by building multi-center cities, so that people can find most amenities and jobs within their neighborhood. Or, at that point, just multiple smaller cities.
Ultimately these questions depend heavily on what makes big cities so desirable in the first place, which I don't fully understand. I understand their desirability for very specialized professionals, of whom only a few workplaces can make the best use of their skills, and workplaces have to choose from a small pool of potential employees. However, I'd guess only a small fraction of the population works in such professions.
Why would people invest in large scale area development under Georgism? Such development will often raise the value of land itself, and importantly, the land around it, which has no inherent value absent the uses it is put to. Take the example of Gurgaon, a sort of suburb of Delhi, India. A bunch of real estate developers bought up large parcels of land that were essentially worthless, invested huge sums of money in creating office complexes and infrastructure in approximately 30-40% of those land parcels, and used the appreciation in the remaining areas to recoup their investment and make a profit. As far as I can see, this would be entirely impossible under Georgism, and seems to raise a significant problems for the dynamics of growth and accounting for externalities.
The nobel Laureate economist Georgist William Vickrey wrote about this topic. Lars may go into these questions in a future article but I'll just note that a temporary "land patent" is a simple solution that doesn't really effect any other aspect of Georgism. And Georgist governments would be incentivized to solve this problem because doing so would ultimately give them more revenue to draw on!
By the latter argument, governments should also be incentivised to solve tax and regulation problems to maximise economic growth, but we have HEAPS of real world evidence to show that it doesn't happen.
A 'land patent' would work in what way? A long term lease? How would you price it? Especially for currently unproductive land? If you price it low enough, all the speculative 'problems' that currently exist and that an LVT claims to solve re-appear. Too high, and no one buys it. If you create a market for these patents, you've effectively recreated what we've got now with a few extra steps thrown in.
Look around you? Most governments in the world are clearly not regulating to maximize growth and tax revenue. In the past century, less than 10 countries have grown over 5% for sustained periods (20-30 years). Japan, Korea, Taiwan, China, Singapore, Hong Kong, India. It can be argued that with the exception of India, the others have come close to policies that maximise growth. Just to be generous, let's add to this all the rich countries and say those are close enough to the frontiers that they are maximising growth, though there are plenty of serious objections to this. That's another 40 or so countries. So we have a total of roughly 45 out of 200 countries that have come close to maximising growth in the last century. Most governments simply don't care.
Public choice theory also establishes the mechanisms behind this quite clearly. Governments, i.e politicians and bureaucrats, optimise for personal incentives, not 'government' or 'National' incentives. They do what maintains or increases their power. Sometimes this aligns with maximising growth. Typically, it doesn't.
It is, of course, really hard to achieve. But mainly it is hard to achieve, especially for low income countries, because there are plenty of situations where there are obvious, well understood solutions on the table that would undoubtedly boost growth and welfare significantly, but nobody touches them because of public choice problems - concentrated costs, diffuse benefits(or vice versa). My point stands - assuming that governments will solve a problem or implement a solution because it will increase growth and hence increase tax revenue is an assumption that is largely unsupported by the real world
I asked in an earlier thread and there was an example town that started under Georgism, so it's apparently possible to get the initial investment to happen.
That's my biggest sticking point: it might not be possible to get the initial investment to happen without letting developers capture the return on land value. If it happened once, it can happen again, and with a few demonstrations (assuming it still works and wasn't a fluke) it should be very workable.
Fun fact -- readers from the comments who speculated about setting up LVT on Mars will be pleased to know that the elusive article by Hagman cited by Wyatt in part 2 that I couldn't find has been sent to me by an intrepid reader, and it starts off with some fairly bizarre fan fiction of Henry George III being directed by the Secretary of Space under orders of the president himself to go build the city of New Chicago on the planet of Mars at a location scouted out by Colonel John Glen II. We are given records of the correspondence as George III lays out his plans for Martian land tax policy.
TL;DR -- what went wrong in New Zealand? Turns out Hagman (through the voice of fictional characters from space in the future) *DOES* support Wyatt's conclusion, saying that LVT failed on the city of New Chicago on the planet of Mars.
Reasons for the failure include:
- Difficulty with assessments
- OVER densification
- OVER taxation
Obviously New Chicago is meant as a cute frame story for pulling in alleged details about case studies from real world Georgist experiments but it all comes across as a bit of a muddle. It's not a great paper and it's main use is to mine it for primary source citations and look those up instead. We can at least say Wyatt wasn't jerking our chain here and Hagman supports his conclusion. The fictional space Valuer General of New Zealand from the future tells us:
"there was no evidence that the tax would (1) control urban sprawl and speculation in land; (2) encourage the construction of 'better' buildings; (3) encourage growth; or (4) cause slums to disappear."
Which being charitable seems like Hagman is interpreting the real historical evidence from Zealand, and that it didn't seem to have worked.
But crucially, Hagman doesn't tell us two things.
1) He doesn't tell us WHY the LVT experiment in New Zealand failed.
2) He doesn't tell us anything about whether LVT is or isn't capitalized into the price of land.
If we want to know more we have to look up the sources he cites, Bird (1961) and Assessors' Newsletter 102 (1961), which I don't currently have on hand.
I will point out that if your economists-in-space fan fic short story (complete with obvious authorial self-insert) gets rejected by your favorite Science Fiction magazine, I would highly recommend submitting your manuscript to the UCLA Law Review.
This miniscule (compared to Georgist ideas) land tax in NZ was repealed completely over 30 years ago, never achieved (according to all of the numerous the studies I've seen cited) any of the social goals hoped for (aside from just be ing a a revenue source)l, and was around 1% or less of land value (though with numerous exceptions that took it to zero) before it faded out almost completely in revenue importance (60 or more years ago ... it took a while for people to even bother to repeal it). Aside from these quibbles, it's a great example and hugely relevant for the Geogists.
I found several, and I confess that though I spent an hour or two going through them (and tried not to go in with strong preconceptions) so I still skimmed massively. I didn't directly follow any of the references to claims that social goals were not found to be met (though I saw such meta-assessents of the source papers frequently):
Separately, if you could be bothered, you might want to research the horrible, almost sordid, history of 'ground leases' in NZ which - from an assessment perspective only - are completely equivalent to 100% Georgist taxes. I wrote a separate reply about that. TL;DR: seriously ungood.
The fact that NZ completely removed LVT 31 years ago and was getting under 1% of government revenue from it 60 years ago is too easily sourced for you to need me to give you a cite for.
None of this argues against Georgist taxes (I take that back; the learned experience of 'ground leases', does - somewhat) but strongly argues that NZ provides none, zero, nada positive support either. It would be dishonest to cite it as support (or against).
I am very interested in the New Zealand case! It's something that had been on my radar for a while but I was unsure of exactly what the policy consisted of and what it had to say about the policy. I also seem to recall reading a paper somewhere that indicates that the peculiar land policy in New Zealand actually *predates* Henry George himself.
And I've already read one PhD thesis for this project, what's one more.
Sound like it'll be a lot of fun and there will be a lot to learn.
I don't know whether the policy predates George, but was certainly contemporaneous with it. (I should know, only yesterday I spent hours reading this stuff.) There was a lot of back and forth and George certainly came in to it explicity at some point. His ideas were in high regard by major poltical figures at the relevant times.
At that time, NZ was considered mostly empty (think, the American West) - since the existing native (Maori) rights were 80% ignored. A REALLY good time to introduce Georgism. And not just land taxes, but huge swathes of farmland were put under 'crown lease' (ground rent owned to the government) which is almost the same thing except even more 'pure'.
AND YET: The tax rate on first introduction was 0.7%.
Bit less than 85%. The 'crown lease' land was, effectively 100% land tax, but no one today thinks that is other than a curse. And for whatever reasons (disputed), even a sub 1% land tax that couldn't last 100 years.
I tried to be fair in my skimming. Except for the 'ground lease' issue, which I think is super relevant to the assessment question is different - I have no interest either way. On the ground lease issue, I've experienced this 'face to face' so to speak and read many papers from the valuation profession on it. I've lost a lot of money on it but, since this is a sunk cost, I still think I can be 64% objective.
> I've lost a lot of money on it but, since this is a sunk cost, I still think I can be 64% objective.
More than good enough for me. I'll take a good solid look at the ground lease stuff and pass it around to people who are smarter than me too. No promises on when I'll have something publishable, and I would appreciate folks like yourself kicking the tires to point out stuff I missed.
A couple of questions from reading the essays and comments (and apologies for anything that’s been asked and answered - the comments are piling up faster than I can read).
1. Many people seem to be assuming that the main (or at least significant driver) of housing costs is under-developed land. This seems implausible at least to the extent that the underdevelopment is blamed on landowner choices rather than governmental limits on development (zoning, building permits, environmental approvals, historic preservations, etc.). After governmental limits on development, I’d guess financing difficulties/bankruptcy and estate tax/step up in basis account for most of the rest of what folks see as under-development. If it’s accurate that LVT advocates blame high housing costs on landowners willfully under-developing property, what the evidence for this? I recall one example being an abundance of urban parking lots. I suspect folks are either underestimating how profitable parking lots are or are unaware of some legal restrictions that incentivize parking lots as opposed to parking lot owners being in sufficiently profit motivated.
2. I’ve read a lot of claims that a LVT has no deadweight loss and is non-distortionary alongside claims that an LVT will have significant effects on land use. It seems to me that if the first is true, the second would not be true almost by definition. What am I missing? (This may just be another way of asking the first question).
3. There are a lot of references to real estate ‘speculators’ (usually with the scare quotes) mostly in the comments and with the clear (often explicit) sense that these folks are engaged in some immoral enterprise. Is the idea that real estate investors are somehow less moral than other investors (or at least engaged in a sleazy business) inherent to Georgism or is Georgism just attracting folks who think real estate investors are bad?
4. The value of a particular plot of land depends on many things some of which are known, some of which are unknown until someone takes a risk and invests the money to discover the unknowns. Like other entrepreneurs, real estate developers make (and lose) money taking risks on those unknowns — whether it’s the outcome of a simple perc test, a rezoning application, or even market demand for a type of development. Assuming accurate assessments, a close to 100% LVT, and land value being a high percentage of total value, isn’t the incentive for making the investments needed to ‘discover’ the hidden value of the land at least greatly diminished if the discovered value gets taxed away? Wouldn’t this result in less rather than more ‘best and highest’ value development?
1. You are right in saying that zoning reform needs to happen along with LVT. Lars has also acknowledged this in the comments, it's just outside the scope of the articles he's written (they've been pretty exhaustive already!) However, you would still be surprised at the amount of land underdeveloped even within existing zoning that exists in cities. I don't have any data on-hand right now but if you join the GeoPraxis Discord server I can hook you up with people who do. And don't forget, underdevelopment can be qualitative as well as quantitative: a place can be underdeveloped by having decaying, cheap fourplexes where it ought to have larger, new ones.
This goes directly into 2 and 3, which are best answered together: an LVT does not produce deadweight loss, and so is nondistortionary as regards best land use. What it does do is reduce- or, at 100%, eliminate- land speculation. For example, a speculator right now can buy an underdeveloped parking lot in a city. This parking lot has low taxes, because property taxes punish improvements, but secures a modest revenue flow to the buyer, who can wait 10 or 20 years and sell it for a couple hundred thousand dollars more, with no risk or investment or indeed any effort at all from himself. Parking lots are only one example- slums and other decaying parts of inner cities are often underdeveloped from the same kind of speculative practices. As such, Georgists dislike land speculators not because they are particularly immoral, but because they cause economic inefficiencies which do large amounts of economic damage. If that seems extreme, remember that Progress and Poverty is subtitled "An Inquiry into the Causes of Industrial Depression," and that land speculation has a definitive link with economic recessions which hurt everyone- 2008 is an easy example of speculative land practices leading to major economic harm.
4. This is in essence the 'search theoretic critique' of Georgism, for which I have some sources on hand:
Terry Dwyer also covers this more extensively in his "Taxation: The Lost History" in various sections, such as "Rent As Reward for Risk" - https://www.jstor.org/stable/43817496?seq=34
"This parking lot has low taxes, because property taxes punish improvements, but secures a modest revenue flow to the buyer, who can wait 10 or 20 years and sell it for a couple hundred thousand dollars more, with no risk or investment or indeed any effort at all from himself."
I don't think that's entirely true; someone operating a parking lot has to charge and collect the fees, for example. Make sure the surface gets repaired or else there will be complaints about damage to tyres from potholes. Maybe provide some form of security (CCTV) depending on location, in case of theft or break-ins. Yes, they can make (relatively) easy money, but if people are paying for parking, then they are providing a service. Turn the parking lot into housing or shops, and where do the people who used to park there go?
This article expands on urban parking, its necessity and its disadvantages (but it is insufferably snobby: "Urban innovators are tired of accepting parking as a necessary evil and are promoting solutions to mitigate the negative impact that parking has on cities." Oh really? And what about the ordinary people who use their cars to travel to work in the cities or to shop and visit attractions? It's all very well for the 'urban innovator' who lives in a fancy apartment in the renovated downtown area and travels via taxi or Uber to sneer at 'ugh, parking spaces!', but without people, a city is nothing).
The term ‘speculator’ seems to keep doing a lot of work. All investors are speculators — real estate IS different than financial investments in that the investor is also an entrepreneur incentivized to find a more profitable use, something average stock investor can’t really do. The idea that real estate investors (speculators) are the cause of under-developed land is the same as saying they’re insufficiently profit motivated. If property taxes have gotten high enough in a jurisdiction to discourage development, the problem isn’t the investors. I’m in full agreement that there is plenty of under developed land especially in cities, but I’m very unconvinced that a significant factor is insufficiently greedy ‘speculators’ otherwise know as investors. I think you’re massively discounting the many barriers to development that exist especially in urban and close in suburban jurisdictions and overestimating the satisfied parking lot owner factor.
There are all kinds of real estate investors — some are happy to buy a CVS at a 4 cap and take the safe and passive investment returns others are betting everything they have that the undeveloped plot of land can be something only they can see. I’ve personally been at both ends of that spectrum and lots of in between and know many others. I’ve yet to meet one who wasn’t open to making more money — except older investors waiting for their heirs to benefit from the step up in basis.
In trying to do a bit more research — I see the idea of land improvement patents. I think if implemented the patents would be the exception that eats the rule. From reading the comments, my sense is that very few of the Georgist proponents have practical experience in real estate investing and development and are massively under counting the entrepreneurial aspect of the business.
Let me try a different question — I’m partially convinced that a well executed* LVT would have less deadweight costs and less economic distortion than the current highly imperfect systems we have. However, that leaves me wondering why such a system would have all of the benefits being predicted in land use and housing costs.
From a passive real estate investor perspective, currently the rent I charge my tenant has to cover my financing costs (mortgage) plus operational costs and enough profit to make the investment better than the next best investment I might make (simplifying greatly here). Under a well executed LVT system, the rent I charge my tenant has to cover the LVT plus financing costs plus operational costs and enough profit to make the investment better than the next best investment. The net difference to me as an investor is insignificant. I don’t see why there’s a significant change in land use — except the earlier argument that real estate investors are just insufficiently profit seeking, which I find very unpersuasive.
The real complexity here is the tax advantages under the current system - I can deduct my interest costs and depreciation. If the LVT does away with income tax, the advantage of tax deductions go away - and other (non-real estate) investments become relatively more attractive. But I don’t think I have the brain power to adequately think through how that affects things. I will say I think anything that discourages real estate investment is highly unlikely to increase the supply of housing.
*I think it’s unreasonable to compare a well executed proposal to a poorly executed existing system, but I’m trying to grant the hypothetical here.
It seems to me that the greatest amount of good could happen quite easily by simply taxing the land instead of the improvements, with no changes in rates. Then developers are not disincentivized from building, if there is real demand to do so. Added to a removal of severe zoning regulations (which have nothing to do with Geogism, and could or could not exist in either system), it seems as though almost all of the benefits of Georgist LVTs could be had without ruinous land tax levels at all. Most of the good with almost none of the bad.
Everything else feels like an overwrought attempt at soaking the rich/landlords.
Why is "best and highest" the right objective. There are many uses for land that have less commercial value but high social value (non-profit stuff, medical care, parks, entertainment, education, etc, etc). You can answer this by saying government/local community can choose to exempt those activities. But doesn't that bring us right back to status quo except now politicians have even greater control over who gets preferential treatment? What makes politicians better decision makers in the Georgian world than the status quo?
Best use may very well be as a park or conservation land- you are reading things into my statement which I did not imply. Value is about what humans want, not solely about production, and by and large people want greenery, social services, etc. LVT actually incentivizes their development because the government benefits directly when such things raise the price of land. As for how to encourage them, there are a multitude of ways- from government creating them directly or subsidizing them, to development bonds (where returns on investment are equivalent to how much the development raised the price of land in the surrounding area).
The government doesn't decide what gets built, the free market does.
But the government would have less incentive to try to direct action through zoning, which is just a crude and corruptible approximation of what the community wants.
Smoothing: The biggest driver of a parcel's tax assessment is the sales price of those parcels near it. If I build an attraction (say, a sushi restaurant), I increase the value of those parcels and, by smoothing, the value of my own parcel. LVT ends up taxing me for a good chunk of improvements.
Multivariate regression (I had always referred to it as hedonic regression in the specific case of land/housing regression) can compensate for this by changing "proximity of the nearest sushi restaurant" for my specific parcel to the nearest *other* sushi restaurant.
Fundamentally, the incentive is to ensure that nobody near me can enjoy anything I build!
For homeowners I suspect this would be a mostly tertiary effect (though your neighbor is never cutting their treetops so you can have a view, that's for sure!). For large parcels--especially destinations like a supermarket-- I suspect it could be very significant. We don't want to disincentivize the creation of locations other people want to be near.
2.
Should I dump some oil drums onto the parcel near mine? When I was performing hedonic analysis of land prices ~15 years ago, I had to throw out all the ecologically damaged sites like former gas stations and industrial facilities because their residuals were so large and negative that they were throwing off the whole analysis.
(Our published paper was not designed for the level of accuracy you are looking for here, more looking at total land value in large metros.)
My fear here is you are essentially comparing an ideal land tax system to our actual income tax system. If you gave me a team of economists and a blank sheet I bet I could design a system of taxes that taxes undesierable behavior (internalizing externalities) and purely positionsl goods [1] and in so doing actually has a large positive effect.
What seems more relevant is some sense of how it will work in practice. There is simply no chance that universities and hospitals are going to have to pay this full tax. First time a uni is turned into a shopping mall because it can't cover it's yearly tax you'll get an outcry and they'll get some kind of exemption and then leverage that to make money as landlords etc..
Secondly, I fear the details of the uniform assessment process are a perfect place for shenanigans. People have a rough intuitive grasp of the idea of marginal tax rates on income and can have some sense of what that means in terms of extent of wealth transfer etc and while special interests get deductions voters can exert a fair bit of pressure to limit this. I fear that the politically influential could manipulate aspects of the assessment algorithm with less transparency.
Finally, I have to wonder how often the assessment process produces undesirable answers without hand adjustment. If a piece of property is unusual in having no space to build something reasonably sized on how does it get taxed? What if local ordinances bar development of that property? etc.... How u handle the edge cases (percent of income can't go too far off) really matters as you don't want lots of ppl caught up in long litigation.
[1] things like fancy watches where the value consists in having something better/more expensive than X% of ppl and actual features don't matter or designer clothes.
Many universities are already significant landlords, both to the urban land and houses nearby, and to the agri land they got in their landgrants. This is *intentional*, the rent was intended from the beginning to fund the operation of the university, and was seen as an elegant way to turn something that remote regional governments had too much of (undeveloped land) into something it was short of (cash flow hungry higher education staff and facilities).
Thanks Lars, you've done it, by George! Three beautifully argued and closely analysed pieces, and I now feel I know so much more about LVT than I'd ever dreamed possible. I'm off to join Common Ground, and by the way, are you any relation to the legend that is Lyse Doucet, the BBC's chief international correspondent?
And the influential won't game the system by just bribing a local assessor. They'll do what they always do: first raise genuine concerns that complicate the system and *then* use the complexity and opportunity for discretion that creates to advantage themselves. My intuition is that this system would make that worse but I admit it's just a vague gestalt sense.
The question is not whether land value CAN be appraised accurately.
It's whether land value WOULD be appraised accurately.
And the answer is: If land value appraisal is put in the hands of the state, the aim of land value appraisal will be to serve the state, not to accurately appraise.
If it's going to be a land tax, let it be a land tax -- a flat tax per acre or portion thereof, and an acre is an acre is an acre, whether that acre is planted in corn, or is some family's retirement abode, or is the footprint of a 60-story high-rise, or is covered with oil derricks. Set the tax per acre low enough -- and therefore keep the state small enough -- that it's not a huge imposition on even the poorest user of the land.
How does that argument not equally apply to current property taxes, and taxation in general? If you're response is that everything is corruptible that's an argument against all of civilization
Value per acre is not a land tax and achieves none of the goals and in fact makes everything much worse.
Not to be rude, but flat taxes to me often seem like they're presented by people of simple mind who can't understand for don't want to try to understand the complex ways that the world works and flat taxes represent some juvenile conception of "fairness".
Flat tax per acre is BY DEFINITION a land tax. It's not a land VALUE tax, it's just a land tax.
If the goal is to finance whatever one considers the legitimate functions of government, setting the per acre tax at an amount that accomplishes it does achieve the goal.
If the goal is to allow the political system to play favorites with its preferred land uses, not so much.
To be blunt, this seems to be the weakest of the four instalments.
1) The author repeats several times the argument that in some jurisdictions that assess land value the assessments are seldom challenged, hence accurate assessments under LVT are quite feasible. The low frequency of challenges may be due to two factors: a) systematic undervaluation and b) low cost of overvaluation to the owner. LVT proponents intend to correct issue a) and their whole plan is to eliminate b). If I am a land owner, my incentive to challenge the assessment declines quickly with the cost of overassessment and with the likelihood of a lower assessment with additional scrutiny. So the current rate of challenges says nothing about the current precision of assessment and gives a very rough lower bound for the 75% LVT regime rate of assessments.
2) It is not realistic to have simultaneously "limited exemptions" and an "easily accessible relief program" and a simple cheap assessment regime for a program redistributing >20% GDP in the current political setup. All the political and legal resources that currently target tax law and application will be rationally thrown to fight for exemptions, reliefs, and quirks in assessment regime. LVT is less based on actual cashflows and market prices than e.g. income and capital gains taxes, so, by definition, it is more dependent on legislation and implementation details, and thus is more vulnerable to these attacks.
3) The more impressive your multi-level regression model diagrams look, the larger is attack surface for manipulation and the less reliable is such a model in the field. The only way to have a reliable market value assessment is to base it on frequent market transactions for land alone and these are not that frequent for an asset which is as granular and quirky and illiquid as land. So the whole section about fancy models looks to me as a strong argument against LVT.
Specifically, the part where he shows that pure-land sales are more frequent in the heart of urban areas than in the surrounding country side, and are in fact more and more concentrated as you approach the city center.
Albouy's estimates for all of America's urban land values were based on estimates that came purely from pure land sales, which seems to have your explicit endorsement:
"The only way to have a reliable market value assessment is to base it on frequent market transactions for land alone"
Pure land sales are more frequent in places where many people live and plots are small (aka cities) than in places that few people live and plots are huge (aka countryside). This is certainly true, and the same is true about sale of many other things, like houses or ice cream. Still, empty plot sales are 1) less frequent than real estate sales in the same area by orders of magnitude 2) are often not representative of land nearby, that is, there is often a reason why a certain plot is sold vacant. This kind of dataset bias is very difficult to correct algorithmically.
Generally, I find it quite concerning that you are quoting Albouy. One should not confuse methods that can give us a rough estimate of the aggregate statistic and methods that are required to give a precise estimate plot by plot. With the former, nobody will suffer if we are off by a factor of 2 in aggregate and by a larger factor for individual plots as long as these individual errors roughly cancel out. For the latter, each of these problems alone would bankrupt a large proportion of local businesses with an 75% LVT.
Another issue is that a typical "empty plot" for sale in a city is pretty far from unimproved land - it has a complex web of sewage, water, electricity, broadband etc connections underneath it and is the result of centuries worth of flattening, rock removal, swamp draining, and road building work. I guess, some of this can be defined away as an improvement "subsumed in land value", but that just means that the unimproved value of a city plot is even more the product of somebody' fiat decision on which of hundreds of these improvements is subsumed and which is not. When viability of any business use of the plot depends on small quircks to these definitions, it is a good way to eliminate unemployment among tax lawyers in a well run place and a good way to fester extreme corruption in a badly run place.
> Generally, I find it quite concerning that you are quoting Albouy.
I am well aware that Albouy's method is best optimized for estimating aggregate land value over large areas, as I said clearly in the articles.
I was responding simply to your apparent assertion that we do not have enough vacant land sales in cities.
Look, I'm not some kind of absolutist. I'm exploring. I'm trying to figure out how to do this. I find it quite concerning that people seem uncurious about how we can get better at this sort of thing and are more interested in dismissing it entirely.
For instance -- let's say we can't do this perfectly. Is it still worth trying? Will trying result in disastrous effects, or will they be better than the status quo? Why?
I am quite curious how we could organise taxation better and this is why I read all four instalments and would like to thank you for taking the time to write them.
I just think that to actually work in practice, a taxation solution has to possess certain properties. For example, it should rely only on directly observable and expensive to manipulate inputs. This is the reason why capital gains tax is superior to a wealth tax even though a wealth tax makes much more sense from many points of view. The main reason capital gains is widely used is that the monetary amount in question is easy to determine objectively and hard to fake - if a stock portfolio is sold for X, it is hard to argue it was worth something else and hard to argue that the seller has a portion of X available to be taken away.
From this point view, LVT is just a special case of a wealth tax. You argued reasonably convincingly that this particular version of wealth tax has many advantages. However, when it comes to the resiliency of assessment mechanism, LVT is worse than a general wealth tax as it takes one element of wealth which is much harder to value than other elements (e.g. liquid stocks), then takes a non directly observable and not even very well defined portion of that (unimproved land only) and then imposes an extremely high tax on that portion.
How do you factor in the fact that capital wealth is mobile and can easily hide itself in the caymans? That seems non directly observable and not even very well defined too.
I guess my thought on mass appraisal is -- do you think the land portion of each building is going to be really volatile? In the heart of downtown, the land share is going to vacillate wildly block to block for otherwise similar buildings?
Let's take this to basics as a scenario. There is a $100K property, we know that's the market value because that's what it sold for five minutes ago. It's got a building. It's got some land.
We have an upper and lower bound for both the building and the land, $0 and $100K. We can observe a lot of other properties in the area. Say we're in a residential neighborhood and there's five empty lots scattered about equally throughout the neighborhood, and a bunch of very similar houses on all the other 500 lots, and the lots are all of similar size. Say the empty lots all sold for $50K each, give or take a few $K (and they're all about the same size). In this scenario, idealized as it is, would you say we can be reasonably sure that the average land value here is $50K per lot, give or take some error margin?
I get its idealized, but I want to tease out if your objection is fundamental enough that we can't even trust assessment in this sort of scenario.
"Will trying result in disastrous effects, or will they be better than the status quo? Why?"
Because of the sunny optimism of "this will mean doing away with every single other tax in existence!" There is such a thing as "too good to be true" and that is what is clanging alarm bells for us sceptics.
Put your case as "this will mean a decrease in your property tax bill" and we could go for it. Put is as "no more taxes plus free money for everybody!" and no, just - no. Those kind of promises *never* work out.
Okay, so if we try this in a more marginal manner (say by collecting the same amount of modest property tax in an area, but shifting the tax off of buildings and onto land), and we see some good results, and you agree they're happening, and then we take another step (such as raising the LVT rate a bit, but far short of anything like what georgists ultimately want), and we see some more good results, and you agree they're happening, would you be convinced then?
I get it sounds too good to be true! That's why I'm trying to lean on the empirical side of things. If it works in theory it should work in practice and we should be able to detect it. Believe me, if it doesn't work I will be the first to abandon it.
Also, to be perfectly fair, in Part I *never* personally committed to "this will mean doing away with every single other tax in existence" and even provided many arguments for why that dream may never be possible. ATCOR seems promising but I will not believe it fully until I see it demonstrated in empirical practice.
Ultimately however miscommunications are the fault of the speaker and I apologize if I did not make my position clear enough.
(1) A proposed LVT set at 75% to 85% of assessed land rental income and 0% of assessed structure/improvements rental income obviously has a dramatic difference in tax rate between what's classified as land and what's classified as structure/improvements.
(2) The most common observed market transactions for high-value properties - both property sales and rentals - bundle those components (land and structure/improvements).
(3) There are both theoretical and practical questions about the distinction between land and structure/improvements in, for example, situations such as positive externality feedback loops between nearby development. (And developer sometimes internalizing positive externalities by building out a sizable planned community.) These have been discussed in the comments to all three parts.
Combine those points, and I agree that there will be absolutely massive political fights over any implementation details and quirks between what's considered "land" value/income and "structures/improvements" value/income.
I'm not convinced by the assertion that a large LVT is a non-deadweight tax.
I'll start with the assertion that investment is risk averse, any source of uncertainty about future costs or payoffs dissuades investment in potentially valuable improvements, and so any unncessary extra uncertainty is a deadweight cost on the economy.
Popular examples of such uncertainty creating a deadweight cost include an unreliable legal system, unclear political borders, unclear property rights, and unclear long-term tax perspective.
In that regard, someone considering to make a long-term investment in improvements (e.g. buildings) on some land - which, according to George, is something we definitely want to facilitate, will consider their long-term costs. Existing experience demonstrates that the willingness to make such improvements depends on the long-term control they have over the land, and this is one of key reasons why societies have considered it valuable for land to be owned by people using it, because e.g. a few centuries ago farming tenants were not motivated to improve the farmland but freeholders were. A system where people making improvements are certain to retain the value brought by these improvements facilitates making these improvements, so the best case for that is people building improvements on the land that they fully own, and in the long run historically this has had a big difference in productivity of land (although, historically, this has mostly been about farmland or pastures, perhaps the modern case where 95% of value is in urban land is different). Arguably this is one of the things that Georgism wants to improve by adding a disincentive for non-user landlords.
So for someone considering building (or investing in) some valuable improvements, the long-term certainty of land matters. If they have a short-term rental of that land, it is a strong discouragement to building improvements (since they can't move these improvements afterwards, and would be either forced to pay whatever rent is requrested up to the full economic value of the improvements themselves, or abandon them), and this discouragement IMHO would be a significant deadweight cost. Tenants in short-term rent conditions simply do not invest in proper improvements. If they have a long-term rental of land (e.g. in some jurisdictions 99 year leases are a thing), that's better, but then it depends on the expected *cost* of that rent - if the rent is fixed, then the effect on investment is similar to a perpetual ownership, but if the rent can be changed, then it's closer to a short-term rental. If we want to encourage effective investments in improvements of land, then we need the ability for would-be investors to obtain a fixed long-term cost/rent of land which is often achieved by outright ownership of the land.
And my argument about a large (e.g. rent-equivalent, Georgian) LVT is that it does add uncertainty to making improvements of the land, essentially being equivalent to a long-term rental with a short-term price renegotiation (since you're always be paying "market rent" for your land and you can't fix it), because the LVT can and will change significantly without your involvement - I mean, that's a core assertion of Georgism, that land prices are often significantly increased because of external factors. With a Georgian LVT, there is suddenly no option for someone to obtain a long-term certain cost of the land they would be using to build a very expensive buildint.
Georgian proponents have previously used an example in discussion of a hypothetical underdeveloped land plot with a single-story home next to a skyscraper, which is not being developed by building e.g. a 5-story building because the landowner is speculatively waiting for someone to buy the land to build another skyscraper, and the suggested effect is that a large LVT would motivate the owner to build a 5-story building to capture at least some of the potential value. My counterargument is that in a similar situation where both plots are still empty and the skyscraper is yet to be built (and thus the LVT is currently at a level where a single-story building makes sense), people would be discouraged to improve that land by building that single-story home, because if the neighbour builds that skyscraper, their LVT will rise to punitive rates essentially ensuring that a 5-story building will get built, and they will have to abandon or tear down that home, losing all their investment in the land improvements, and not gaining any benefit whatsoever from the increase in land use value (since all that increase of value is captured by the LVT), so the building of a skyscraper would cause them a significant cost, and the *potential* for a future skyscraper next to your house creates a significant extra cost/risk to building that house that is essentially a deadweight cost.
Essentially, every single improvement that might get later 'outclassed' by future land value increases requiring it to be replaced by a different, more intensive improvement carries that risk. You might have cheap land in a backwards town. If you build a large factory and large warehouses on that cheap land, there is a certain likelihood that the town will 'boom' (no matter if it's caused by you creating lots of jobs or not - Georgism and LVT doesn't measure that) and the then the land value all over the town will increase - including your own land, and you have the risk that you will suddenly have to pay a much larger LVT than before. That future risk is a real cost to consider today when deciding on building that factory/warehouses, and whenever that consideration causes someone to build less factories/warehouses, that turns out to a deadweight cost to society. One could argue that it's low, or perhaps outweighed by other benefits, but because of this argument I'm conviced that the deadweight costs of LVT are not zero.
"Georgian proponents have previously used an example in discussion of a hypothetical underdeveloped land plot with a single-story home next to a skyscraper, which is not being developed by building e.g. a 5-story building because the landowner is speculatively waiting for someone to buy the land to build another skyscraper, and the suggested effect is that a large LVT would motivate the owner to build a 5-story building to capture at least some of the potential value."
In that hypothetical situation, I think that the owner would do better to pay the punitive rate for not building a five-storey building for a while, since generally where skyscrapers start springing up next to single-storey homes, the land will be purchased to build another skyscraper eventually (and sooner rather than later). So if you anticipate that you can sell your plot of land for a million dollars, taking the hit is worth it.
There's actually an interesting thread here about building skyscrapers and tall buildings and the costs involved:
But the problem you anticipate happens if we build our single-storey houses on a plot of land outside the city, and then ten-fifty years later, expansion means that now the city wants/needs to build on that land. That's where LVT would be unfair, because I didn't anticipate that my pleasant villa would be gobbled up by the city and now you are telling me tear it down and build five-storey building or else you'll hit me with punitive taxes?
Wait, "So if you anticipate that you can sell your plot of land for a million dollars, taking the hit is worth it." is simply not true under Georgism - since noone would have the right to the land rent cash flow of that skyscraper, the land would not be sellable for a huge value, land rents would rise equally to the LVT, and the landowners would *not* be able to speculatively profit of the increase of the value of that land - the whole point of Georgism is to prevent that. The ability to buy a plot cheaply and sell it later for a huge amount is based solely on the ability to extract rent from that plot, which Georgian full LTV eliminates.
So I have the choice of paying estimated LVT on "the plot next door has a skyscraper on it so your plot could have a skyscraper on it so that's the taxable value" and hitting me for several thousand a year, and if I can't afford several thousand a year, selling my plot for peanuts to someone who can afford to build a skyscraper on it, because the land is not sellable for a huge value.
Why should I think Georgism is a good deal? I can't benefit from the potential value of the land either way and you are forcing me to give up my own property.
This is where the Georgian assumptions that it would elicit more building fall apart for me.
Any particular investment would create a fairly large level of uncertainty, as you point out. This increases the hurdle rate for any particular investment. Meanwhile, the cost of borrowing increases significantly as the collateral value of the land essentially goes to almost zero. The asset benefit of owning land goes away and switches from CapEx to OpEx. I struggle to see how you ever get a positive business case in this scenario.
I think a response could be an entire article, but stability could be done through long-term leases. The owner of the land could sell the land to the government, which would then provide a 19/49/99 year lease, and the user of the land agrees to pay the land rent at a fixed rate based on the current value, or a capitalized upfront cost. That way, you have the stability of knowing that for 19/49/99 years, the LVT will already have been paid or you'll know the payments ahead of time. The government receives the land and improvements at the end of the lease, and probably sells the property to someone who has an interest in maintaining the building. I'm sure there are other ways, this is just the one I've thought of before.
"The cost to build something isn't necessarily the same as what it would sell for in today's market. Therefore, this approach tends to overestimate building values and underestimate land values." Most things are worth more than their construction cost, or people wouldn't bother making them. Also, with buildings as with everything else, depreciation is an accounting simplification which bears little connection to the way value actually changes over time. To take an extreme case, if you depreciate a building over a 60 years, you conclude a 60 year old building is worth nothing. But in fact something like half of UK dwellings are over 60 years old, and those buildings clearly continue to have some value.
As was pointed out previously, it can't be right to apply the same capitalisation rate to land and buildings, when one is appreciating and the other depreciating. Also, your income approach looks at net income, which is right in theory but very difficult in practice. It's easy to find out the market rent for a property, but nobody other than the landlord (and often not even him) knows the expense rate. It's complicated by the fact property expenses are really lumpy.
A teardown property isn't a pure land sale: you should add back the cost of demolishing the existing building to establish the value of the vacant plot. I imagine that would be a simple adjustment.
The cost of assessing land values isn't the total cost of administering an LVT, since you also need to collect the tax. Most of the IRS's 0.36% operational costs will be collection, since they outsource the assessment to taxpayers (I think: that's what happens in the UK at least). In some sense you have an obvious remedy for non-payment of an LVT: you repossess the land. That ameliorates a potential problem with tracing the owner: you could just staple your tax demand to the front door and you don't really care who pays. But repossessing properties is expensive, so I think your total overhead may be quite a bit higher.
It seems obviously wrong to assume that two adjacent properties have "essentially identical" value due to location. The value of a plot fronting on Oxford Street will be much higher than the value of the plot to its rear.
An LVT would be like rates, and commercial property owners are constantly complaining about increases in rates, and I've seen businesses close down in my own town due to a combination of downturn in business while the rent and rates still have to be paid, often at increased value, so the owner simply can't make it work.
"Commercial rates have their foundation in the relief of poverty legislation of the 1800's, but are now a tax levied by local authorities on commercial premises to fund services in their administrative areas and represent an important source of income for local government.
Early each year, local authorities "strike" the rate for their administrative area meaning that the annual multiplier is agreed at a meeting of councillors. This figure is then multiplied by the Rateable Valuation ("RV") of each property to determine the level of commercial rates payable in respect of each property in a given year. The RV is calculated periodically by the Commissioner for Valuations and published in the Valuations List. It is possible to appeal the valuation if the ratepayer believes that the RV is incorrect."
Georgism feels attractive and repelling to me for the same reason: it will introduce capitalism to landowners that could previously avoid it. Formally, "competition" might be more accurate than "capitalism", but capitalism has the right associations for me.
If you are currently a landowner, then you can do with your land whatever you want. If you want to make profits, you do that. If you want to use it for your own house, you can do that. If you are a do-gooder and you want to use your land to offer social housing with less-than-I-could-squeeze-out-of-you rent, or you want to grow a forest to fight climate change, you can do that.
With LVT, you can't do this anymore. You have to pay the hypothetical profits of optimal land usage. If this optimal usage is a skyscraper, then you have to pay the yearly income of a skyscraper (only the income of the land, not the building). You would still need to pay that hypothetical profit if you grow a forest on your land. This would ruin you in no time, so growing a forest is impossible.
This means that any landlord is exposed to the competition of using the land in the most profitable way. No room for slacking. No option to just use it for your own house, or for social housing.
Is this good or bad? It basically introduces capitalism/competition to a niche which was not exposed to capitalism so far. Capitalism has been very successful. It is extremely good at optimization and produces incredibly efficient solutions. Putting land to its optimal usage is a good thing.
On the other hand, capitalism has downsides, because it optimizes only for a single value, profit. This is not the only value that we care for. For example, unbounded capitalism caused severe collateral damage on human rights or on the environment. These can be held in check by regulations, but it requires a huge body of regulations and a strong state.
Likewise for LVT. If it goes unbounded, I can imagine a scenario where all forests in a country are cleared due to LVT (because agriculture is more efficient and CO2 is not yet part of the incentive system). Now, it is not impossible to avoid this. The state can decide that only forest is allowed in some regions. Then growing a forest there becomes possible. A well-designed carbon tax might also make it possible. But this requires explicit intervention, and the state might not be good at it.
I have said that landlords will be exposed to competition/capitalism, and lose the privilege to do whatever they want with the land, because their "grow forest" dream needs to compete with the "build skyscraper" option. But this is a similar situation of *non-landlords* right now. If you *don't* have land and want to grow a forest, then you need to *buy* the land first, and in this auction you have to compete with the skyscraper companies. It's not exactly the same because in the current situation you only need to win the competition once. (Which is sometimes possible by saving for a long time, but it's hard. Ask any millenial.) With LVT, you need to win the competition *every year*. Here you can't compensate by savings or anything. If you are less efficient, you are out.
This doesn't sound like a pleasant world. On the other hand, capitalism also didn't sound nice (and wasn't) to workers in the 19th century, and still turned out pretty good after all. But only after a long time of misery. If something like that would be the price for LVT, it might be too high.
Of course, I am a bit melodramatic. I have been assuming an LVT of 85% or 100% or whatever. An LVT of 20% would give a much milder competition and would have less impact. But on both sides: on the potential negative effects, but also on the positive side.
My personal conclusion would be that LVT seems pretty worthwhile in dense urban areas where we are desperate for efficiency. No wonder that the bay area twitter cloud likes Georgism, because a city like San Francisco is exactly the kind of place where the argument "but I want to use the land for my own family cottage" should lose to the overwhelming public desire for efficient land usage. But elsewhere, where the public interest is not overwhelming, we might want to live in a world where the first argument wins. I would be afraid that the side effects of a country-wide LVT could be huge and unexpected.
Yeah, I think Georgism is solving an old problem, not modern ones. For cities in 1901, Georgism is a great idea! Knock down those crumbling old abandoned buildings, make the land-holders put up something useful there rather than having weed-overgrown lots lying idle for speculation! Housing for the labourers who will get jobs in the factories that will spring up - because now the incentive is to be productive with the site - on those empty lots!
It's not 1901 anymore, we've decided industrial air pollution is bad and we want people to be able to breathe in cities, and nobody makes things on production lines anymore (that's been shifted to China etc.), now we have big office block skyscrapers moving money around by computer.
"My personal conclusion would be that LVT seems pretty worthwhile in dense urban areas where we are desperate for efficiency."
That's my opinion too. In an LVT world, you would still be able to grow forests, because that kind of commercial forestry operation of softwoods works on marginal lands, like hillsides, where there is nothing else you can really do with the land (apart from run sheep on it. Or erect telecoms masts). So Georgist productivity-maximisation would allow you to own acres of scrubland and grow spruce for timber on it.
Towns and cities, though? Well, do you really need all those parks? Such a waste of prime real estate! So retrograde!
But this is something can politics can decide upon. Politics can just decide that this area is a park, and no building or commercial activities allowed on it. Then the land value is zero, and you pay zero taxes.
My concern is just that it requires effort and attention to make these rules. But in big cities this is not a problem. There is city planning and detailed zoning laws anyway.
I don't agree for my own city, but that probably depends on the city. But isn't this beside the point? I don't see that city parks would be more likely to vanish in a Georgian system than in the current system.
You believe that zoning laws and approvals are currently optimized for the public interest and not captured by special interests at all?
And I don't believe that point is that parks would disappear - but once you have created a process to exempt a park, the school will want an exemption, then the child care facility, then the parking lot because it benefits everyone after all....
the original georgist argument is that a) it's not that hard to privately assess land values and compare to find corruption b) it's cheaper to root out corruption from land tax assessors than from the web of bureaucracies we have now
IMO that's not particularly compelling anymore since gov has grown so much already and is unlikely to be 'simplified' but it's worth aiming towards. there are some democratic innovations that could be helpful in combatting corruption, like sortition.
for zoning we're pretty doomed as long as we constantly have local control where voters benefiting from restrictive zoning can by definition outvote the people they're harming - everyone who wants to move to a place but can't. japan solves this by (mostly) having national rules for zoning.
The argument is that land is a scarce commodity, thus value can be artificially inflated by speculators holding on to it instead of using it productively by building more housing.
I do not see how you can argue that in order to have cheaper rents, we need more housing, so the parking lot which is a quarter-acre in size must be build up with an apartment block, but several hundred acres of space in a desirable location must remain pristine because - rich people like riding their horses on the stable paths?
In principle I agree with that. But it's not really a dichotomy, is it? There are a lot of parking spaces in many cities, and they are taking up a lot of space. That doesn't justify being inefficient elsewhere, it just means that you have several types of inefficient city space usage, and you should tackle all of them.
Also, it's not only rich people who block city development. In 2014, there was a public vote in Berlin, forced onto the city government by a petition. The result: The Tempelhof field, 380 hectare (1000 acres) of unused space in perfect position in Berlin will not be used for housing and buildings, but rather remains a field. The area became available because the old in-city airport was closed and replaced by a new one. (You may have heard some stories. In 2014, people thought that the new one would open soon. They were wrong.)
But I agree that such places should be used more efficiently if there is no overwhelming public interest to leave them open. Like for areas which are not generally accessible. If they are in private property, an LVT might solve this problem.
Donald Shoup's 'The High Cost of Free Parking' is basically the modern incremental georgists' bible- he'd support a 'land value tax' on parking in the form of meters that vary the market price throughout the day, with all revenue set aside in a specific fund that can only be used on public improvements. this seems to have worked in pasadena, where he based his case study.
I see dilapidated houses on €500k+ plots all the time around where I live. I think a land-value tax would be likely to induce the owners (presumably feuding heirs) of many of those plots to put them to more productive use. So, from my perspective, it would solve a modern problem.
> then you have to pay the yearly income of a skyscraper (only the income of the land, not the building).
You have to pay the return on the land-value of that, not all the income of a skyscraper.
The Empire State Building has a footprint of just under 2 acres, if I did my math right. And this source (sketchy, but I googleable) https://www.6sqft.com/study-shows-huge-disparity-in-u-s-urban-land-value-with-nyc-making-up-10 shows that the most expensive land in NYC is $126 million per acre. So assuming the ESB is at the most expensive land, it has a land value of about $250 million. It would have to pay about $13 million per year in LVT taxes.
Machine learning is a good fit for tasks where you occasionally classify turtle as a dog and systematic classifying groups of people as gorillas is not a problem. (both are actual problems)
Or where existing classification is not working at all or terrible and anything would help.
Just no for solutions that would end in cases like "algorithms told us that you should pay 10 billion in taxes, noone knows why, sucks to be you".
In a democratic society if you do not like your local assessor, you can vote them out. And if they are appointed, you can vote out your local commissioner who appoints them. In my local area both of these offices won by extremely small voting margins.
My point is to say that if the valuation system is transparent and done with software that anyone can use, anyone can audit, anyone can scrutinize, with open data that anyone can reproduce, then any educated private citizen can perform their own audit and get loud about it and through the democratic process push for change.
In a dictatorship where the government does whatever they want of course you have no recourse but that is not the society most of us live in.
Sounds like something that a motivated group of people who want to be the change they want to see in the world could change by their participation. Is your position that we are resigned to never being able to change government at any level through organizing and so we shouldn't even try?
> anyone can audit, anyone can scrutinize, with open data that anyone can reproduce, then any educated private citizen can perform their own audit
Note that barrier is quite high: only programmers will be able to do such audit.
It is not something doable by random educated person, it is doable by person specializing in some specific job.
And even if it would be fully open (what would be welcome but unlikely given standards) then
> we will be a slave to the machine learning algorithm
would still be true. Making it auditable is not changing that. I have seen enough bugs in software to dislike idea of fully automated system assigning potentially life-destroying taxes.
In addition to high barriers on technical knowledge it also requires high domain knowledge. Any machine learning is going to be very sensitive to the assumptions made, which are not always transparent.
That being said, I doubt that precisely calculating land value is the largest obstacle.
Have any experience with machine learning? I do. In practice it’s a generic term for like 50 vastly different numerical models, some of which have been around for 50 years and have nothing to do with, say, computer vision. If you have a problem with a specific method, please articulate its deficiencies.
My experience is very limited, but as far I have seen automatic processing named "machine learning" "AI" etc are extremely hard to debug, analyze and get info why this specific outcome was achieved.
One gets bundles of parameters or relies on extremely simplifying assumptions.
For example
> Here, we enforce the assumption that if two properties are right next to each other, then the value due to location is going to be essentially identical.
is extremely flawed - there are dramatic effects where plots just next to each other may have drastically different values.
It is noted that this assumptions are not actually true
> The big assumption here is that land values change smoothly and do not change suddenly across very short distances. There are, in fact, locations with sharp jumps in value (any town with an "other side of the tracks," for instance). But for cases where we know a priori that land values change smoothly, this method is appropriate.
> but as far I have seen automatic processing named "machine learning" "AI" etc are extremely hard to debug, analyze and get info why this specific outcome was achieved.
This is only true with some models! Many are quite auditable and can be scrutinized and questioned.
> is extremely flawed - there are dramatic effects where plots just next to each other may have drastically different values.
I provided a variety of methods with pros and cons, not endorsing any single one as a single bullet. The point is that we can continue to research and get better at this by making guesses and then comparing them against actual market values.
I have no great experience in this field but any actually usable software, algorithm or idea must abandon assumptions like
> land values change smoothly and do not change suddenly across very short distances
before having chance to be actually usable.
This assumption is dramatically untrue and would wreck any actual deployment of massive land value taxes so is not helpful in georgification of tax system.
And mentioning it as potentially relevant makes me suspect about other claims. Are other claims are also as far away from actual real-world-situation as software ideas here?
So the current trend is towards deep learning, which is basically neural networks with many layers instead of the conventional single hidden layer. Even older neural networks suffered from exactly the problem lunar suggested, in that individual decisions cannot easily be explained since the individual nodes in the hidden layer do not have human-readable labels attached to them. With deep learning this problem continues to exist, so if a government goes with the current trend, lunar is correct that there would be no possibility of a satisfying explanation for an individual homeowner that wants to know why their LVT is higher than they can afford.
More generally, many forms of machine learning are very sensitive to the particular data sets used (see all the recent work in bias resulting from data sets based on people making e.g. biased hiring decisions). Machine learning can definitely be a very powerful tool here, but we shouldn't ignore the costs resulting from the explainability problem.
I agree. There are other models that are more explainable that do not rely on the deep learning paradigm and are able to give you the individual contribution of various factors. Are there any specific models you would suggest I look into researching?
Furthermore, I am interested in doing a study on mass appraisal methods, including machine learning models and non machine learning models. Would you be willing to specify some evaluation criteria vis-a-vis explainability that you would like to score the various methods on?
> Would you be willing to specify some evaluation criteria vis-a-vis explainability that you would like to score the various methods on?
Given outcome should be based on clear parameters.
No parameters in 1626-dimensional space with opaque meaning (what disqualifies big part of machine learning, if not all of that - though I guess that it depends what one calls machine learning, I have seen calculating averages qualified as machine learning).
For example iLVM development model seems acceptable on that consideration, while some black box machine learning model for me is not acceptable at all.
It's a lovely theory. It's a beautiful, shiny, gleaming theory that promises infinite money to the local and national governments and infinite tax cuts to we the people, plus the bonus of "the rents charged will go down because Magic Pixie Dust - that is, by the power of GEORGE, landlords won't hike up your rents to cover having to pay the LVT and they won't hike up the rent to compensate for having to pay twice the old going rate for the land, since Georgism assets land is always undervalued; no, because the cost of the buildings and improvements are separate from the cost of the land, the value of the buildings will go down and the value of the land will go up, and thus the rent for the less-valuable building will consequently decrease!"
Spherical Cow Tenancies, in other words. No landlords like this in the real world!
I am in complete agreement that this needs to be tried out in practice and not theory. Some city run it on a test pilot basis for five years, and see what happens.
Because I think beautiful, shiny, gleaming theories turn out to be a bit rubbish in practice. But I would love to be proven wrong!
I think Georgist theory (1) was great for the late 19th/early 20th century, when cramming people into tenements was acceptable practice, and industrial development mean 'put up a factory or sweatshop on this lot' (2) works best in cities, so is going to be a problem for suburbs and agricultural land to assess and (3) will mitigate against single-family homes.
Now, I know a lot of people will say "Great!" for that last, because we've had debates on here about "what is so bad about bed-sits? relax the regulations about so much square footage per person, let people rent out less salubrious properties to single individuals at cheaper rents, this will help the housing squeeze" and "ban all single-family homes on lots where they could at least be putting up duplexes or multiple-unit residences".
Which in effect means "city living is for single people or childless couples" because when people have families, they need more room (hence moving out to suburbs) and conversely, what stops young urban couples from having kids is "we don't have enough room". Sharing a flat or house with other people means one bedroom of their own, they simply can't have a baby, much less two, unless they can afford to rent or buy a house of their own.
So the logic of the Georgist tax, which seems to have been the impetus for it at the start, is "make the most productive use of land" which in a city is "apartment buildings for multiple occupancies, or businesses and manufacturing units". The kind of group house living (for Scott, for example) would, in Georgist theory, be better replaced by an apartment block so everyone has their own individual unit and you can get a lot more people living on the same square footage of land. Ease the housing shortage, provide more units and thus reduce rents!
What a nice solution. So long as you're not planning to have kids. Because the reductio ad absurdum case is that the maximisation of productive use means smaller units for each tenant so you can fit more in. After all, if a block of fifty flats is good sense to provide more housing, a block of eighty flats is even better! And since land is the limiting factor, as we have all agreed, to fit more in on the same land, they have to be smaller. Tenements were the most Georgist-efficient properties, it would seem.
And what about those wasteful suburbs? We want to combat sprawl, don't we? So again, no single-family houses where instead you can put up multiple-occupancy units on the same plots. I never thought I'd ever consider a semi-detached house a luxury item, but if you want some (wasteful extravagance!) bit of back garden or front lawn, then you better be rich enough to afford such unproductive luxury.
I really would like to see this tried out. If it works, great! But I think the proof of the pudding is in the eating, and this might be a tough morsel to chew in practice, where real people and unintended consequences are involved.
The system would seem to rely on a fairly substantial liberalization of zoning rules - otherwise you are punishing, through taxation, someone that isn't building because they are legally prevented from building.
Rather than change too many things at once I'd propose getting those rules liberalized and see if anyone still thinks there's a problem.
Yes, we hate pretty much all zoning. The desirable features of zoning can all be accomplished via market mechanisms and LVT, a Pigouvian taxes/subsidies.
"being pass on" is a nonsensical concept. Rental contract prices are a function of supply and demand. The only concept worth discussing is how much a change in policy is going to effect supply or demand - the rest is guesswork.
There is a lot of over-confidence that LVT is going to increase supply without carefully considering how the changes in tax policy actually effect investment decisions.
I'm being asked to accept that every square inch of land in the USA, including rattlesnake-infested barren desert, is worth umpteen billions and so by a wave of economic wand, putting in a Georgist system will do away with income tax and give free money to us all, every man-jack of us.
Pardon me if I think that sounds like fairy godmother promises.
This isn't at all what's being suggested. In fact, the rattlesnake infested barren desert is worthless and wouldn't likely be taxed at all.
But urban land is very expensive and is likely significantly undertaxed.
Georgists can sometimes get too utopian but I think we try to do a good job of saying "theoretically and empirically we know these are the trends that Georgism will achieve and then here is what theoretically that might achieve but we aren't really sure because we don't have empirical data, but let's go as far as we can and when we've gone that far we'll see what else needs to be done."
I've found you to frequently have thoughtful comments and I sympathize with your position. What evidence -- even if it never arrives -- could possibly convince you?
I'm very doubtful because all the shiny promises of before about how "this thing will mean prices will be so low as to be zero!" have never come out that way. We were all supposed to be working 20 hour work weeks with tons of money and tons of leisure in this the 21st century, and you tell me if that happened.
I'd like to see this tried on a small scale before we get any big shiny promises of "no more taxes ever and everyone will make more money by developing the land they currently sit their backsides on!" I think putting it into practice will show a *lot* of lumps in the gravy.
I think we will find a lot of warts pop in practice as well! I'd just like to see what sort of results could possibly happen that would convince you that hey, maybe this actually does work. If it can be done, it should be demonstrable. If it can't be done, it should not be demonstrable. And if it can't be demonstrated and the evidence is solidly against it in real life, well I'll find other ways to spend my time rather than continue being a Georgist.
Btw, the translation of "Richtwert" is literally "orientation value", or "guideline value". I.e., it is a guideline without direct legal consequences. ("Richtung" = "orientation").
Boden = land (also "floor" or "ground").
Bodenrichtwert = orientation value for (the price of) land.
The Bodenrichtwert is meant as a service that can be helpful when you want to sell/buy land.
This all makes some sense for cities where most land is not owner-occupied, and it helps explain the existence of a wealthy land-owner class in New York. However, I would have liked to see some discussion of the impact on typical homeowners in suburban America. If the American dream is (was?) to own your own home, with 30 years of mortgage payments and that home’s rising value being your best (or perhaps only) investment, then Georgism threatens the current home-owning middle class with a loss of their retirement savings.
I suppose this is under the out-of-scope heading of “Transitional Politics”.
Well, if you replace income tax with a land rent tax, or use the land rent tax to fund a citizen's dividend, then the benefit to the middle class is that they keep a lot more income. For those who no longer have much income, the tax could always be deferred until sale of property/disposal of their estate.
On top of keeping more of their income, it also reduces the cost of land, and should result in more housing being built. I didn't see any papers cited by Lars that demonstrate this empirically, but theoretically it makes sense. And more housing of course means downward pressure on prices for all kinds of housing, including suburban homes.
I do think that the trend for the past 80 years (really since the end of WW2) for housing to be seen as a means of investment is terrible both for society as a whole and for individuals. A few individuals in high-demand areas benefit when the city improves, but a lot of individuals (especially in rural counties) are tied to toxic assets when prospects in their area go bad. Housing as an investment having negative consequences for general society only requires 2008 as an explanation.
> Unfortunately, the Russian authorities went with Harvard Professor Jeffrey Sachs' "shock therapy" instead, and the rest is history, as anyone who lived through the post-Soviet chaos can tell you.
Post hoc ergo propter hoc.
What's the evidence that the collapse of Russia was any of
1) the lack of LVT,
2) related to the orthogonal policy of getting rid of price controls rapidly
3) not related to the massive amounts of pre-existing corruption?
My main point was about natural resources, so to be fair, let's see what Sachs himself had to say:
> Nor did the government raise revenues by selling its valuable natural resources; instead they gave them away.
I think it would be a mistake to sell off the natural resources (similar to what Ebeling suggested in Part I for the US) and that they should rather adopt a system more like Norway's, which has been massively and provably successful. In any case it seems like Russia did even worse than selling them off.
I think a useful case study might be to look at many different post-Soviet economies and see what different policies they took, such as in Estonia, which allegedly has implemented LVT, but which I have not yet studied.
Does anyone have thoughts on what impact LVT would have on open spaces? There are large tracts of private open land currently undeveloped. Landowners have such low taxes on this property that they are often satisfied using it for hunting and fishing, or just letting it be, using the deed as a store of value. The land does, however, have significant LVT if cleared and used for agriculture or building. This is not done today because of the activation costs and risks associated with clearing and permitting, but with a high % LVT, the owners would be forced to develop to pay the tax.
Lars seemed to be pleased about this resulting pressure to develop land according to its most efficient use, but as a lover of the natural world, I want to see our wild places protected from development.
Taxes wouldn't raise on land for which there is low demand.
It would encourage development in places that need development. It wouldn't incentivize paving over forests to build houses that are going to sit empty.
As far as suburban or urban adjacent natural spaces, a la Central Park, there are sort of two thoughts there. First, Central Park significantly increases the surround land values, so turning that into more buildings would likely lower surround land values, which wouldn't be desirable.
The other side is that you might have something that provides less land value than the cost to maintain it, like some natural land or an historic building or something. In this case, the community would have to decide if maintaining this is worth the cost, and maybe sometimes they'll decide that it is. But at least the cost and benefit will be clearly demonstrable to the community.
Makes sense. The public can still maintain open spaces that would be undesirable to be developed at the level of some community objective function, even if there would be a high marginal benefit to the developer, by purchasing the land from the private land holders or zoning to block development.
We also advocate potentially for things called Pigouvian Subsidies, which would essentially be funds that provide landowners with a subsidy for doing things to their land that have been deemed in the public interest (and ultimately increase land values by at least as much as the pigouvian subsidy pays out, most likely).
It would not be desirable for Central Park to be replaced by condos, but an LVT would insist the owners pay the rent of condos, not of parkland, if Central Park was privately owned. If the community gets to decide that some people don't get to pay taxes because the community likes them then you don't have a tax system so much as a set of special cases.
The community would have a strong incentive to prevent things that reduce the aggregate land value of the community. How exactly you accomplish that can be up for debate.
As far as who pays for it, the community can easily pay for it FROM rents, since the value it provides is capitalized in the rent.
That's the "Henry George Theorem" posited by Joseph Stiglitz. Publicly funded things ought to capitalize in land rents, and therefore you can sort of evaluate the effectiveness of public spending by whether it raised land values by at least as much as it cost.
Only if the only thing they cared about was paying as little land value tax as possible. But since the land value tax is directly proportional to how desirable of a place it is to live, I doubt that would be the case.
Things that increase land values: schools, roads, trains, businesses, ports, airports, waste water and water infrastructure, power lines, internet cables, footpaths, nearness to people you like being around (e.g. family and friends), sports stadiums, concert halls, museums, parks, art galleries.
The entire reason land gets value is because people build desirable things around the land, and I don't think people mind paying some more dollars of tax to have a nice park or school set up near them. We already pay for it anyway, but a land rent tax that replaces other taxes would shift the incidence of the tax onto the people that (currently) disproportionately benefit from those desirable things: landowners.
Sure, but that's because under the current system, you're taxed on a very small percentage of the benefits provided to your property by improvements on other people's property. The Georgist theory is that value should be fully taxed. This creates a very different set of incentives.
One, anything that improves property values, but you don't personally use (to the extent that you value it as much as it increases your costs) is now a net loss for you (as you can't recapture that value on sale). So, if I have no children, I should (economically, not morally) oppose any school improvements or schools in my area. If I don't enjoy parks, I should oppose their continued existence.
Second, this may incentivize making sure your improvements either fuck over your neighbors, or at a minimum, don't benefit them. Because the assessment value for your parcel is going to depend (in part) on how the neighboring parcels are valued and because otherwise your neighbors are going to hate you, as you're directly driving up their taxes.
Frankly, it looks to me like for all its talk of superior morality this theory will incentivize the 'man as economic animal' model of development which is not one I support or believe can support any sort of society I care to be part of.
"First, Central Park significantly increases the surround land values, so turning that into more buildings would likely lower surround land values, which wouldn't be desirable."
Given that on the land which later became Central Park, there were already dwellings - "Following proposals for a large park in Manhattan during the 1840s, it was approved in 1853 to cover 778 acres (315 ha). In 1857, landscape architects Frederick Law Olmsted and Calvert Vaux won a design competition for the park with their "Greensward Plan". Construction began the same year; existing structures, including a majority-Black settlement named Seneca Village, were seized through eminent domain and razed" - then the argument over keeping Central Park as open land isn't very strong. Why not return it to its roots as housing?
And if the surrounding land values are increased by having Central Park a barren expanse, how is that different from artificially limiting housing construction to make one's property more valuable?
Well, there is some greenery to "productive" building ratio that is desirable. Maybe having one giant park is not the best way to achieve that, I don't know. But the point is that the character of the community should be some expression of the median desire for various factors like greenery, density, access to amenities, etc, etc.
Without an LVT, there is simply no way for those demand signals to have the right impact. Because as demand for a location goes up, the price of the land goes up, but it doesn't automatically turn that increased demand into increased production or services.
With an LVT, if you overdevelop an area and it doesn't have enough green space, or living is too dense, or whatever, land values will fall, because living there has become less desirable, and there is a demand signal to adjust the development of the area.
LVT would be so much more marketable if it’s proponents settled for something a bit less extreme - replacing property taxes with with LVT. It’s so easy to market: “we shouldn’t punish people for making improvements to their own property”. But now that the well is poisoned with talk of the government seizing all land, good luck ever getting an LVT in the US.
And then once LVT gets passed and implemented, then you can talk about adjusting the rates in future legislation.
Perhaps it’s unfair to characterize taxing 85% of land value as “seizing”, but the difference between the two seems small to me. Even talking about it as the end goal of a gradual process is politically problematic.
If that's the idea, then I don't see how it fits with claims about a Georgian LVT replacing most or all other taxes in the U.S.
In 2019, U.S. total government expenditures were ~$7.3 trillion. Total receipts were ~$5.9 trillion, and net borrowing was ~$1.4 trillion. Those figures are consolidated, netting transfers between levels of governments (e.g., federal to state and state to local). Details are on pages 69-72 at https://apps.bea.gov/national/pdf/SNTables.pdf
This BEA report also shows total state and local property tax receipts of ~$600 billion.
So if the end goal is largely to fund government with LVT, then we're talking about *both* (1) changing the structure of property taxes to exclude structures/improvements and (2) increasing total property tax receipts (the LVT) by roughly an order of magnitude.
Summarizing it as raising property taxes "a few percent" (of value) understates the magnitude of the change, in my opinion.
Perhaps I should instead have stated it as "the (maximalist) idea is still talking about fundamentally changing a tax system that collects ~30% of GDP by replacing it with a modified version of a tax that currently collects ~3% of GDP".
One can talk about gradual phase-in, etc., but the end point is still a massive change.
If you get all (or 85%) of the return on a property, you have taken that property, regardless of who has their name on a deed somewhere. Part of the idea as mentioned in previous posts is that this drives the price of land down to near zero. This happens because while the land still has value, the "owner" of that land isn't the one who benefits from that value, the government does.
I agree that in the eventual steady state this creates a nice way to own a building while effectively just renting the land under it, but we shouldn't pretend that the transition doesn't involve losing any meaningful ownership of that land.
I certainly don't pretend the transition doesn't involve pain. Would you be interested in a follow up that goes deep into every aspect of political practicality and transition? Spoiler alert: I'm not pre-committed to any particular conclusion given that I observe we don't currently live under a Fully Automated Luxury Space Georgist regime, even though the philosophy has been available for over 100 years.
Very much appreciate the exposure to something I hadn’t seen before. There are 2 things I’d like to see in follow ups. First, a potential expansion with respect to what a lot of people see as a bigger problem than land, that is virtual property. For example, even though Facebook created the “land” of Facebook, the value is brought by all the people being there, like a city. Does Georgism have anything to say about that?
Second, I would like to see the public choice critique; what happens when actual people are executing this? What are their incentives and how does that have to be accounted for in the plan?
Most of us have opinions on digital land and believe it does share many of the same properties, but its often used as a red herring to imply the digital economy has overwhelmingly replaced the relevance of land, which isn't true.
Georgism has a lot to say about digital land, IP, monopoly in general, etc. It actually figures into my day job a lot as I work in the game industry as an analyst.
I can write about public choice stuff too, that'll have to wait for a future piece.
Thanks for this series. I am definitely more Georgist than I was a few weeks ago (mostly because I've only ever heard arguments against Georgism).
I also dig the Kabbalistic implications of George - Geo, a common English prefix meaning earth. Orge is French for barley - one of the very first grains ever cultivated by humanity. Note that in his name, the symbol for earth comes immediately before the symbol for wealth cultivated by man. These roots share a letter between them, this is also not an accident - it symbolizes that land and wealth are inextricably linked. My interpretation of the name George: Land is a necessary antecedent for wealth, which emerges from human labour upon it.
George was the perfect man to put forth the theory that all wealth comes from human labour being applied to the earth.
I think my biggest conceptual / ethical / moral issue with Georgism is that it seems to conflate land value with rental income.
If I buy a house on the fringes of town on the cheap, and then a bunch of other people move in, build amenities, and create jobs, my lands gets more valuable and my quality of life may go up through no *effort* of my own. Unfortunately for me, the government doesn't accept taxes denominated in quality of life -- they demand money. But I can't monetize the increased land value unless I sell it or rent it to someone else, so I may very well be saddled with a tax burden that I can't pay through no *fault* of my own. How is that fair?
This is the problem with gentrification in a nutshell. I do *not* want to prevent people from moving to and improving a new area, but also don't want to penalize the people who are already there. Both traditional property taxes and LVT seem to do just that.
That's just the unfortunate reality of life. As long as the population is growing there is going to increased demand for location. You have to figure out how has a right to that location and "whoever got there first" doesn't seem any more fair than periodically assessing who is going to use that piece of land to provide the most value to the community.
For what it's worth, after a transition period, I think you'd see pretty strong stability and a focus on upzoning, rather than suburban sprawl, meaning that the character of rural or suburban land would be unlikely to change rapidly.
This simply is handwaving away the huge deadweight loss created by uncertainty and moving. Its similar to the property tax proposal where you publicly declare your property's value and anyone can buy it from you for that + $1. Then you take your money and buy a neighbor's house, and he buys another neighbors house, etc. Until most of the town has moved in a sort of moving cascade which has inevitably cost each person moving thousands or tens of thousands of dollars in transaction costs.
The Georgist rebuttal, as I understand it: The value of the land is a common good. Just because you were there first does not entitle you to the wealth generated by your neighbours. As you say, you accumulate these benefits through no effort of your own. The same way that a landlord extracts wealth and directly monetizes it (as rent) you extract the wealth of living that community as Wealth - things you value that are the result of human labour on the land. If you do not value the wealth of that community as much as the free market does, you will inevitably sell your land and move out. This isn't a bug, it's a feature!
My intuitions don't love this conclusion, but we should compare it to our current system instead. Gentrification happens regardless of the existence of an LVT or Property tax. In a free market with no LVT, some big buyer will inevitably offer you (and most individual landowners) some stupid amount of money, and you will be happy to move to a cheaper area and cash in the value of the land which you did not earn. They then bid eachother up and take out big loans and now they have to pay those loans and suddenly The Rent Is Too Damn High. This also feels unfair, but feels less shitty as the homeowner because at least you get a big pile of cash.
I think an LVT is better than our current system. I'm on board with the earlier post - it's the least bad tax. Possibly some relief for individuals who live on their own land to help me deal with the ick factor of being 'forced out' by taxes? I don't love that either since it's not based on any principle I can point to. Thoughts?
I posit that possession is 9/10ths off the law* for a reason - because dispossessing someone is actively harmful, and that strikes most people as fundamentally unfair absent some compelling reason. Also, the first person to possess something usually has to put forth more effort or take on more risk than the people who come after, and I think most people feel like that deserves some extra reward. Exclusion, on the other hand, seems more passive, even if it can theoretically be backed up with force.
Saying “that’s just the unfortunate reality” ignores the fact that imposing an LVT (or any wealth tax) is an active policy decision with a predictable, potential effect of dispossessing low-income people. It doesn’t sit well with me, and I think a lot of people will find it really unjust.
* IANAL and I don’t know if possession is literally 9/10ths off the law. But I think a lot of people think it ought to be.
Perhaps the very first person took on more risk (and there some prevision in this in Georgism for a sort "land patent" system where someone who stakes out a new claim isn't fully taxed since there is real labor and work in turning existent land into something usable for production), but after that, not really.
They just lived in their house, it appreciated, and then they made sure the next generation started with a massive aggregate debt as a transfer of wealth from young to old.
"so I may very well be saddled with a tax burden that I can't pay through no *fault* of my own. How is that fair?
This is the problem with gentrification in a nutshell."
This already happens to all the renters, except it isn't a tax burden that they can't pay but a rent burden. Renters in gentrifying areas are forced to move out through no fault of their own.
> Pretty much everybody agrees on the basic algebraic formula for deriving land value:
> Total Value = Land Value + Improvements Value
Only for a definition of land "that" is the full bundle of everything tied to the property's current use. Which includes zoning, air rights, easements, etc.
That's how you get things like the value per acre of a 1 acre lot being a lot more than that of a 1.5 acre lot, in an area with a 1 acre minimum lot size: They both get to only build one house. The value of being allowed to build massively outweighs the actual incremental value of more land, in areas where land value is very high.
But that dynamic's going to enable gaming the LVT. Buy a 3 acre lot, split it inefficiently into 1.5 acre lots, build only 2 rental homes, get a much lower tax than someone who did the efficient thing. While ultimately being able to still sell the whole 3 acre lot to someone trying to build condos later. Reenabling land-speculation, in exactly the same way as before (buy lot, make inefficient use of it, knowing the true revenue comes from a later sale).
Depends on the method of assessment. The market value of the land with minimum lot sizes, today, largely depends on the number of properties that can be built on it. Splitting the lots in an inefficient manner would reduce the market value.
You can argue that the methods suggested in the post would not get the true market value, only an estimated $/acre based on the nearby properties, who did not do this.
But if that's what will happen, that means 1.5 acre lots that exist naturally will be estimated too high, forcing people to abandon them. No one will want to own such a lot, as you'd be paying 50% more yearly in taxes for the privilege of being allowed to build exactly as much housing.
This is something that I was thinking about as I was reading the series. Any assessment of land value should be independent of the parcel boundaries, right? Otherwise you run into issues where someone could increase or decrease the value of the land by parceling it in different ways.
I also think most Georgists would push for removing lot minimums along with zoning. Did lot minimums ever benefit anyone?
Lot minimums on your lot arguably benefit the owners of other lots, who are guaranteed less competition, and you in turn benefit from other people being restricted from building more housing that could compete with yours. It's basically a cartel arrangement, backed by government.
I should add that I enjoyed this series, I'm impressed by the amount of work you put into it, and I would like to see more. You convinced me that land is a big deal (though I didn't need much convincing to begin with), and that there are probably good-enough solutions out there to the challenge of assessment, at least in theory. I'm not sure how to feel about the ability of landlords to pass an LVT to tenants. The role of public choice in Georgist policy and responses to some of the philosophical objections might good topics for future posts.
Got any good sources for me to start looking into? I'm not an expert by any means and I rely a lot on finding people smarter than me and asking them a bunch of questions.
James Buchanan and Gordon Tullock are the fathers of public choice, but I’ve not read their papers. I’ve learned about this stuff from listening to EconTalk. Searching “Public Choice” at EconLib brings up a lot of stuff.
"A city doesn't have a huge incentive to repeal restrictive zoning policies because it isn't hurting their tax base. According to Georgists, a city whose tax base is land value has well-aligned incentives."
I struggle with this argument. Right now, the general structure of property taxes in the U.S. is that they go to local government entities (school districts, cities, counties, etc.). And, because structures/improvements are also part of property tax valuation, there's a clear and easily explained link between new construction and increased local property tax revenue.
a) If any part of the local tax base is built from sales tax or property tax it is clearly false. Building an extra-large building creates more tax revenue than a small building, yet many zoning laws force people to build small buildings. And more people = more sales tax revenue.
b) There is an assumption that politicians are revenue maximizers, which seems to be an unfounded assumption.
I have the same issue. And also the fact that if you implement Georgism first without zoning reform, then suddenly zoning reform suffers from a perverse incentive. Communities (ie. voters) are suddenly incentivized to minimize development to keep land rents low and so will strive to maintain highly restrictive zoning.
In our current system, people often oppose up-zoning even though they would financially benefit, simply for aesthetic reasons. Give people an actual financial reason to oppose zoning reform and it'll just never happen. Unless, you do it federally and bypass local city councils etc.
Unless private agreements on deed restrictions and restrictive covenants were explicitly banned, people could at least in theory re-create localized restrictive zoning through these contractual mechanisms.
Those are reasonably common today in large new residential developments. In some cases - e.g., HOA's with detailed architectural design standards - they're significantly stricter than plain vanilla zoning / land use rules.
I don't know if it's at all common for a neighborhood-sized group to add these to existing properties. I would think it's legal for anyone who wants to do so, but there could be a collective action issue getting everyone in a neighborhood to agree on adding them.
I have a concern that I freely acknowledge isn't particularly well-addressed in the current system, but I'm left to wonder about the implications a Georgist system would have.
In the face of significant wealth inequality like we have in the US today, without affordable housing guarantees, it seems to be generally more profitable to build a few large expensive homes rather than many small homes. The reason is that a sufficiently wealthy person will likely pay more than ten times as much as ten poor people for a house that takes up ten times as much land as ten smaller residences.
If we eliminate all taxes except LVT and then only tax based on the amount of land used up (in a linear fashion), I suspect developers in general will probably be more incentivized to hunt "whales" rather than build smaller affordable housing. In urban centers, without affordable housing requirements or some sort of super-linear (in terms of space/person) land tax, I imagine sooner or later everyone who isn't in the top 10% of incomes gets priced out of being able to live there. And this is not because there just _isn't enough space_ but because developers are incentivized to build residences for fewer, wealthier people.
Assuming we don't want the bottom 90% to have to commute into the city every day, how do we address this?
I've previously seen an objection to Land Value Taxes that rural households (especially farmers) have a disproportionate amount of their wealth tied up in land, and shifting our tax system from mostly income tax to mostly LVT tax would be really bad for them. I don't remember whether this was raised as "and therefore LVT is bad" or as "and therefore LVT is not politically viable outside of cities". Is this a legitimate critique of Georgism?
It seems possible that rural land values are low enough that a LVT is actually not very impactful, even to rural households with a lot of land. Or if they're not currently low enough, they will be as LVT drives down the value.
Or, it seems possible that the Georgist response is that the LVT is intended to discourage people from holding land and not deriving much income from it, and so the incentive it creates for rural households to sell their land is a feature, not a bug.
Or, there's some other counterintuitive way in which a LVT is actually good for rural households and/or farmers, despite increasing their tax burden.
Or, there's some exemption that it makes sense to carve out for a LVT so that it doesn't enrage farmers, either to make it politically viable or to protect rural households and small farms.
This seems to me like a rediscovery of farm subsidies. In practice, farm land is insanely valuable to society, but farming itself is made trivial by modern technology. No matter the system, farmers are basically public employees not paid a market rate for their labor.
Its a Land Value Tax, not an Acreage Tax. Farm land isn't particularly valuable. "Farm land" is typically in the range of hundreds to maybe a few thousand dollars per acre, while 1 acre of NYC is worth 5 million. Since you pay a percentage of the value, it doesn't hurt you to own lots of farm land.
Besides, Bill Gates is the largest single owner of private farmland in the country. Farm land is typically held by private equity and then leased to small farmers, so ending that practice would help.
Additionally, a lot of suburban adjacent farm land is planted with low-density monocrops like soy beans and corn, which are largely not for human consumption, and they're used to make a small income while the land is held out of use and the land speculator waits for the urban/suburban area to expand. This is ecologically damaging and creates a fragile food supply. These practices are not good, but they're incentivized by not having a system that uses land effectively and taxing labor and capital, as these practices are labor and capital intensive. If you encourage efficient land use through the LVT, and remove taxes on labor and capital, then you'll see agriculture shift to more intense polyculture farming, which is more labor and capital intensive, but more land efficient and sustainable.
All around, LVT would result in a agricultural system that looks a lot different, but it not hurt farmers, except farmers that are actually just land speculators and mega-agrobusiness that makes all its money planting corn and soy beans.
I was hoping this article would be less about the practicality of running all the assessments and more about the theoretical hurdles in separating land value from improvement value in the first place.
Like, linear regression gives a list of factors that create property value, and you say that we can just sum up the boxes that correspond to land value. Which boxes are those? You mention proximity, but that's kind of a can of worms. If I own two adjacent lots, a house and a garden, then the garden gains value by being next to my home and the home gains value by being next to a garden, both are land value. If I combine them into one lot, all that value becomes improvement value. Are there any non-proximity based factors that count as land value?
A post on r/themotte mentions that pollution is a negative improvement, how do we deal with that?
I've read all four of your posts and I don't think I fully believe that land value is a coherent ontological category. I'm eager to be convinced though.
In other words, do the methods of assessment you mentioned here capture the ideas proposed by George himself? Or were his definitions incoherent, and the "Land Value" as defined by regression analysis is not properly called Land Value and instead captures something like "value of adjacent lots" which is beneficial to tax for unrelated reasons? Are all the land values you mention and measure in these four articles the same? If two Georgists argue over whether a feature should be included as land value or property value, is there a way to determine who is right?
My reaction when I saw the list of factors was "They've solved the Problem of Socialist Calculation. Woo-hoo! Red Plenty!" (Seriously, if they go for anything approaching 100% of land rent, they really will have to solve the PoSC somehow: the sale price of unimproved land would drop to near zero with such a tax, so you'd no longer have market prices as a reference point.)
Actually, if market prices of pure land drop to near zero, that's feedback that your assessments are very accurate! And we know the land income of those pure land parcels who have been driven to a near zero purchase price, it's whatever the current land tax you're collecting from them is.
The fact that the assessor will get a signal *if* he happens to succeed in his task helps a bit; unfortunately, it doesn't change the fact that he's blundering about in a fog at the start. If a parcel happens to change hands I suppose the sale price could be used as feedback to adjust the assessment, though at the risk of entering a house of mirrors: now one of the factors determining the sale price will be the parties' guesses about how much the assessment will change as a result of their own transaction.
You can just design the assessment method so each parcel’s sale only affects the nearby plots. Gets tricky when one person owns two nearby plots, but that situation is tricky for lots of other reasons already.
The philosophical definition of land value is nothing more and nothing less than what the land would sell for in the market if the improvements weren't there, in a world where there was no current land value tax applied. Basically what it would sell for if it was nothing but a parking lot.
All of the implementation methods are about trying to calculate that figure in a world of imperfect information. But it is a testable hypothesis in principle, even if you don't always get exactly the data points you want, you are making a kind of prediction about what properties will sell for under present market conditions.
I'm all ears for how we might get better at doing this in practice.
The complaint is not about the lack of perfect information. The complaint is that the concept of "land value" is ill defined.
If I build a gated community in the middle of nowhere and rent out all the houses i pay no LVT. All of the value is due to improvements I placed on the land.
If i then sell off the houses and all the shops suddenly all the value of the community is captured by the LVT.
No algorithm can solve this problem. It is inherent in the fuzziness of what counts as an "improvement"
I think we've arrived at a root difference of irreconcilable beliefs about epistemology. Sincerely, thanks for engaging with this and helping me to understand your position.
This is a really good case study. I think we should want the first owner who built the city to be allowed a profit from his work. But people who buy the houses shouldn’t.
So ostensibly the first owner pays no LVT, but the buyers do. But that doesn’t work, the buyers won’t pay full price because they know they’ll have to pay the LVT. So the guy who built the town can’t be compensated unless the home buyers are allowed to speculate on his production. Is that reconcilable? I want it to be, but have no idea how.
It's the same analogy as shares in a company. They didn't exist before the company was founded, but if you want viable capital markets to exist, you can't just say only the founders can gain. And capital markets serve really valuable functions, unlike the claim that they're just speculation, which they wouldn't be able to serve without the speculation. I was originally quite intrigued by the idea of an LVT, but after engaging with it more, I'm now of the opinion that land is intrinsically (almost) worthless, so an LVT would be significantly distortionary to incentives for innovation and development, because it assumes this to not be the case.
How good an analogy is that though? Share markets are useful to society because they give people a way to buy companies (or parts thereof) while having confidence that they're paying about the right price, and sellers benefit from having more confident buyers. But this is not a problem anyone buying a house has. Buyers know how much a house is worth to them already, they don't need speculation to figure out the value to them?
What do you mean by "full price" here? It seems obvious to me that they will be willing to pay more than the original buyer. They'll pay less than if there was no LVT, but never so little that the original owner didn't make a profit. In fact, the idea of LVT being based on lagging indicators rather than future-predicting ones strikes me as being no bad idea at all!
By full price I mean paying the town founder for the full value he created. The founder "should" be paid the full difference in land value between when he found the land and when he sells it. But then the people who buy it would have to recoup the price they paid, which they can't recoup if they're charged an LVT.
For example, if the founder buys space for 100 houses and only builds 50 houses (plus all the amenities of a town), with LVT the 50 empty lots should definitionally sell for $1. He makes a profit on the 50 homes, sure, but not on the 50 empty lots. But he added a lot of value even to the empty lots, so the money he loses to LVT seems unjust.
Oh okay I see now. But does that still track? The value comes from the other people living nearby, and the employers as well doesn't it? 50 Houses all of which empty and with no jobs nearby isn't as valuable as 50 neighbors and a couple of shops. It's not the original buyer alone who added this value? I can understand how it might still be desirable to subsidise this kind of town building though, I guess that's what the 'founder patents' some other people in the comments have referred to.
Of course this is reconcilable. Why would the developer sell the houses with land? The easy thing for him is to retain the land forever, possibly in a trust, and grant 999 year leases to homeowners. This is better for everyone (except for hapless Georgian taxmen.) It is a bit more difficult for an existing city with diffuse land ownership but with the cost tag of 10%+ of GDP annually I am sure people will find a way to merge ownership of city land back into a single entity if it makes land tax free.
I don’t think this solves the problem, just moves it. What is unimproved land?
So for empirics, I’d want a definition of pristine land. I think our idea is to bulldoze the plot, rip out all the grass, cover it in garbage, and then whatever that sells for is the unimproved price by definition.
If we agree to that definition, then I think there are some good examples of ways a
landlord could change the land value in practice, which makes dead-weight loss theoretically possible. I think George would explain these the same way as the “smashing Ming vases to sell as gravel at a loss” example from the book review (explaining why wages always flow from production): these can happen but by their nature they’d have to be minor edge cases. I would like to see a Georgist go through these edge cases and explain either why they fit into the theory or else why they can’t be widespread enough to matter.
Personally, I’m fully sold on the morality superiority of LVT. Land speculation has always struck me as wrong, for reasons George articulated well, and I think I even agree that it’s the least-worst tax in terms of deadweight. I’m less convinced of the more utopian claims, like that raising the LVT never has negative consequences or that it can end the correlation between progress and poverty.
Why is LVT always been taken as the standard and only method to achieve Georges goals (collect unearned income and prevent speculation)?
I can think of many cases in witch an LVT would cause harm. In my view this is because LVT builds on the land market value. A market value is not a real actual profit I can spent on something, it is just potential future profit. You could even say it is a speculation on its own. But George wanted to collect actual profits from land and stop speculation. This is a completely different thing, but people (only here?) always mix it up.
If there are alternative suggestions for how to achieve George's goals, I would be very interested to hear them. I'm new to Georgism, I'd heard about it in passing before but these articles are the first time I've come close to understanding what it's all about. .
I guess you could tax capital gains at 100% (less any improvements to buildings or other fixed assets)? The problem that people often bring up with that mode is that then people just choose not to sell and things lie unused and underused for longer, and that's inefficient and doesn't lead to more housing being built
I think the "adjacent lots" problem is soluble. The general idea is that an improvement affects LVT to the extent that it would change the price of an adjacent lot, based on how it affects the "quality of the neighborhood" rather than the improvement's direct selling price or revenue-generating potential. An individual improvement would have a much smaller effect on the LVT of the land it sits on than on a property tax, but not necessarily zero. You could imagine the effect on LVGT of an improvement spreading outward as a 2D Gaussian (to oversimplify). One could empirically estimate the effect on LVT at the site of the improvement, independent of the actual increase in selling price which would be much higher, by fitting such a parametric function to changes in nearby empty lot prices.
In an age of alchemistic, chimerical assets, it is salutary to be reminded that we are three dimensional beings living in a three dimensional world needing three dimensional assets to live our lives. That doesn't make me a Georgist, but it makes me happy. Thanks for all your hard work, Lars.
I wonder at what rate Land Value rents are already taxed (via a combination of Property Taxes and indirectly via Income Taxes and Capital Gains Taxes) and how that varies by jurisdiction and whether we can see effects from that. It sees like indirect taxes on Land Rents are pretty substantial or is there some reason to think of that differently.
I guess anit-Georgism would be expected to raise land values (certainly seems the case in CA with prop 13 which is basically the opposite of what Georgist's would recommend so that checks out).
"If Georgism is true, and the only thing standing in the way is being able to pull off accurate assessments, then let's just get better at doing that. We're the species that split the atom and travelled to the moon. Surely we can handle this."
With respect, there's a difference. Atoms exist. The moon exists. The value of land which isn't actually unimproved does not exist in the same unequivocal sense. There isn't a 'true' objective split of property value (even conceding that the overall property might have an objective value, e.g. market value) into the sum of land vs improvements part. There isn't even necessarily a split we can arbitrarily choose that won't cause economic damage if used as a tax base.
The moral case for Georgist's policies seems fairly questionable in the United States at least. A 100% LVT (or close enough to it) seems roughly equivalent to the government owning the land (or at least the entire beneficial economic interest). But the governement did own almost all the land in the United States (especially out West)! And fairly recently too! It still owns huge amounts of land (a good place to experiment with Georgists policies? the feds don't seem to get a huge amount of economic value out of the 28% of the country they own). Nevada is >80% owned by the feds yet I bet something like 95+% of the land value is in that other ~15%. Nevada is pretty much all worthless desert so it seems like this should tell us something about where land value originates.
The capitalization argument would seem to run both ways. If the LVT is fully capitalized then it should be perfectly reasonable for the governement to sell that stream (by selling the land) much like a perpetual bond (a thing governements have sold) or lease it for extended periods of time (like regular bonds). And indeed the governement has sold off a lot of land, both for cash and other considerations. Is the argument that government got a bad deal and should get a do-over? A lot of that land was specifically given to incentivize / pay for infrastructure development to make the land more valuable (the railroads for instance were given alternating blocks of land as inducement to build the railroad with the governement keeping the other half and in that case it's pretty clear where the value came from, and it wasn't the government, if anything the government was the land rentier in that case). So do Georgist's support the government selling land? And if not, why not? Should policy instead focus on leasing? iirc much, though not all, of Singapore is public owned and leased for extended periods of time, like 99years and I think all the land in China is treated similarly. What do Georgist's think of that kind of situation? Is that Georgist? China doesn't seem immune to expensive property and certainly not to speculation...
Public land leases approximate Georgism, but obviously determining future pricing on a 99 year lease is essentially impossible, so its better to do more frequent valuations.
Singapore is probably the best example of a quasi-Georgist regime and they've been probably the biggest success story in regards to moving their population and country from poor/developing to modern/developed.
How does Georgism deal with restrictive covenants and other mechanisms that separate out various aspects of development rights from land? I guess this is somewhat similar to zoning, though privately mediated. I know there's a lot of land around where live, for instance, where various development rights have been separated from land ownership and sold off to various charitable organizations / trusts / foundations and as such the land can only be used for limited purposes (generally either 'nature', recreation or farming; sometimes allowing a very limited set of mostly pre-existing structures). Or the complicated NY air rights / setback / overhang rights. Would charitable organizations be taxed (prob. yes? though that's not going to be popular, for ex. most universities famously don't pay property taxes on their campuses, though in a few cases like Cambridge, MA the universities dominate the city so much and so reach the city has strong-armed them in to making 'voluntary contributions in lieu of taxes' or some such, though at ~85-100% LVT expect some fighting around this).
I would hazard that the rights holders under such covenants would be considered to "own" that aspect of the land and be liable for the corresponding tax.
That would make sense, though not sure how charitable organizations would be treated (purist would say no differently, though that's as arguably true of other taxes they are often exempt from). Would certainly complicate assessments though, and I could see trying to game (or just financialize / separate out / slice and dice various degrees of land ownership in a vary high rate LVT system) adding to that.
I think the idea of gentrification driving up taxes for homeowners is a legitimate concern but can't that be solved by insurance? The homeowner pays premiums then if the land value increases by more than e.g. 5% per year, the insurer covers the difference for the next 5 years.
There is an old, existing, fairly widespread, very well studied, example of a 100% land value tax.
Except, it isn't a tax - but the issues *as regard to assessment* are identical.
I'm thinking of the British (and elsewhere) concept of a 'ground lease' where a private party owns the land and receives rent based on 100% of the (frequently reassessed) value of the hypothetically bare land. Often the land-user (the ground lessee, and owner of the improvements) has the perpetual right to develop, trade, and use the land (subject to paying ground rents) - so this is EXACTLY the valuation split that Georgism envisions. (Different because the money goes to a private party, not 'society', so I limit the equivalence to the assessment problem.)
There is quite a bit of literature on this. I'm not a valuer/assessor, but I've had reason to dip into it a bit. My short impression: it's a real mess, there are no agreed on answers, and in any particular market something convention or other seems to get settled on. Lawsuits and assessment fights are commonplace; lawyers are happy. The trend in most places is to slowly move away from ground leases because of how difficult they can be. Indeed, if it comes to market, the land is often much more valuable to the ground lessee than anyone else since it offers him the chance to end the fights, extinguish the ground lease, and make the land + improvements package "normal" (and so much more valuable).
None of this matters much if your actual land value tax is at one or two percent so I would question the relevance to Georgism of empirical data that looks at such regimes. But when it approaches 100%, we do have experience of how well the assessment situation works. My skimming of the literature says: awfully. I may be completely wrong about that opinion, but, regardless the facts are out there in the 'ground lease' literature.
A tax on assessed values of 2-3% is a 100% Land Value Tax. A 100% Land Value Tax is a tax on the capitalized rate, since as Part 3 showed, rent is fully capitalized.
If that's the case, then the highest property tax states in the U.S. already have very high implied land value tax rates -
As a % of owner-occupied housing value, effective property tax rates range from ~1.5% (Ohio) to ~2.1% (New Jersey). Those property taxes aren't LVT's, so the effective rates are calculated as % of overall home market value (land + improvements). The aggregate amounts raised should be broadly similar, however, and probably even somewhat higher for New Jersey. https://taxfoundation.org/high-state-property-taxes-2021/
For commercial property taxes, the highest effective property tax rates range from ~2% (Nebraska) to ~3.2% (Connecticut). Again, these property taxes aren't LVT's, so the effective rates are calculated as % of overall property market value (land + improvements). So these should bring in *higher* total receipts than mentioned by Travis. https://ncchamber.com/dashboard/index/headache/effective-commercial-property-tax-rate/
I struggle to square (1) these property tax numbers, (2) the claim that a tax on assessed values of 2% to 3% represents 100% LVT, and (3) the calculations in Part I claiming that implied land rent is ~25% to ~33% of U.S. GDP.
No state (plus its local government subdivisions) is raising anything like 25% to 33% of its gross state product from property taxes. That has to be true because every state has some taxes other than property taxes, and state plus local tax receipts close to 25% of GDP (nationwide, they're about 10% of GDP).
Well, maybe. But you also have to, as Lars said, see if the assessments are any good. If the rate is 3% but the valuations are coming in at 10% of sale price, then its not a very good LVT.
At the moment i see kind of two versions of policies that get mixed up. Perhaps i misunderstood Georgism, or the term land value tax is misleading not only for me but also for many other commentators.
1) Georgism as i understood it from the original book review is about all rent (as profits from land) should go to the community and nobody should profit from only owning land. Private profits are totally OK if they are coming from the use of the land or from improvements/investments on the land. I will call this LPT for 'land profit tax'
2) Land value tax (LVT) implies a amount of money to pay per year calculated as a percentage of the current market value of the land. This is independent from what you actually currently do with the land, it only depends what somebody else is willing to pay so he could use the land. I will call this LVT from now.
This is a big difference. LPT is about factual received rent that George wanted to tax 100%, LVT is about is potential, not manifested value.
Let's make an example and to see as many aspects as possible lets assume I own 2 similar small houses in the same neighborhood on the edge of a small town. The town is not very attractive and there is no city around so the land value is quite low. In 'house A' I live with my family, 'house B' I lease to some tenants.
What is my profit from owning the land:
A: I live here, this gives me practical profits: paying less rent, not having to deal with a landlord, access to community infrastructure.
B: financial income: my tenant pays me, that is partly for the building(improvement), my service(work) and partly for the the land.
The idea of Georgism is that this profit should be taken from me by a tax to give it back to the community. So lets assume in this starting situation a LVT would equal these profits and be about the amount of current property tax.
Now what happens if there is a new disney world or a new giga factory build in town? Suddenly there are a lot of people coming in to work here and perhaps even a lot of tourists. So the prices of housing and the demand for land raises and so does the land value. Now i have basically four possibilities what to do:
1) I could just try to ignore all of this and live my live as if nothing happened.
2) I could choose to profit by raising the rent of my tenant. If he asks why my answer would be: "Well, because of demand and there are people that would pay that much, this is just the usual price today."
3) I could replace house B or both houses with a apartment blocks to feed the demand for housing and to earn even more. But this is only an option if I'm rich already or if I get a huge loan from the bank.
4) I could sell my house B for a multiple of the amount it was worth just years ago, making big financial profits.
How would these options play out under different tax rules?
In the system today all 4 options are no real problem. The property tax would rise a little, but i could pass it on to my tenants so nothing changes much in variant one.
With LVT in place somebody could build apartment blocks instead of my houses, this sets the market price and my LVT just quadruples. This makes options 1 and 2 basically impossible. I would be forced to build apartment blocks or sell my land to somebody who does. Of cause all my neighbors face the same problem until the apartment market is saturated. Than the apartment blocks are barely profitable any more, but LVT would still be too high to live in a single family home with a big garden.
Now imagine there is a LPT taking away exactly the actual profits i get from the land.
I could still decide for option 1, the practical profits stay the same. On one hand i could profit from better infrastructure and better job chances as the town grows. On the other i am annoyed by more traffic, have a longer way if I want to enjoy nature and I have a higher risk that some big building is blocking my view in the near future. So let's call it a net zero.
I could still raise the rent for my tenant, but i have no incentive to do so as the rise will completely be taxed away.
I could opt for 3), this increases my income from building and service, but the tax would also raise to eat exactly the land component my tenants pay.
If i sell a house, i can keep what the building is worth and what I payed for the land, but any increase in land value I would have to give to the tax office. This way, I get the same money I sell it sooner or later and speculation doesn't make any sense. If i don't get any income from managing the house(work) there is no financial incentive to sell or keep the house.
So my conclusion is that an LVT would enforce the most profitable use of any land, while LPT leaves me with all my freedom, just stopping me from getting unearned income and making speculation impossible.
Some say enforcing the best utilization of land is a good thing. I strongly disagree for several reasons:
- personal freedom and security are very important. Both get violated if you suddenly can't afford any more to live in the place you love and lived for many years because of reasons outside of your influence.
- the most profitable use of land is usually not the best for the local community.
- This would destroy all places that get their value in part because of 'inefficient' use of land. Imagine you have a area with many small houses and farms in a lovely landscape. This is discovered by tourists, so there is growing demand for hotels, restaurants and other tourist infrastructure, so the land value will rise. Now the small farmers go bankrupt and nobody can afford to have a private house because of the high LVT. Even families living here for generations are driven out. This would not only destroy the lives of many people, but also make the place less attractive for tourists, bringing everyone in trouble who invested in tourist infrastructure.
- LVT based on the possible values would make it impossible not to use any natural resource. Imagine oil is discovered on your farmland, than you have to pay LVT based on the profits possible extracting the oil. Nobody could ever afford not to extract it for whatever reason (you like farming, climate protection, leaving some oil for future generations).
I don't know how seriously or how tongue-in-cheek Adam B. means this, but in reply to an objection I raised:
"AdamB5 hr ago
> the rent for the skyscraper next door is $1,000,000 so the value of your land with one family home on it is also $1,000,000 in potential rent, pay up!" and I'm going "no, I can't afford that, I'm not getting $1,000,000 in rent!"
Then you must get a higher-paying job, or move somewhere cheaper. Society as a whole benefits.
AdamB5 hr ago
(living as the only tenant of such a desirable piece of land is a lavish luxury. it denies hundreds of others the right to live there at the market rate. why should you be entitled to such wealth? you did not create it. nor did you purchase it: the land was cheap when you purchased it, because the wealth had not been created yet.)"
So possibly some potential Georgists think 'personal freedom and security' are for the birds, not for humans. Sell up or be forced out, kulak!
(I am not an actual Georgist, just an intrigued reader of this blog, so I may have everything wrong.)
It sounds like Georgism may only work to the extent that "the best for the local community" can be made "the most profitable use of land" by taxes and subsidies.
And yes, it sounds like "personal freedom [to never be forced to move once you've managed to purchase the place you live]" is sacrificed under Georgism, in favor of other societal goods (which are more evenly distributed than this freedom which only 2/3 can afford).
(I don't know much about Soviet communism, but from what I've heard it doesn't seem like an apt comparison. A Georgist government isn't in charge of what is done with the land; the owner still decides. The government only estimates how valuable the land's greatest purpose is, and if the owner chooses a lower-producing allocation, then they must pay society the difference out of their own pocket. The Georgist government doesn't appropriate labor or capital.)
(Also, Soviet communism doesn't seem to work, likely because goverments aren't good at choosing how to deploy land or labor or capital. It's possible that Georgism won't work because governments aren't good at assessing land value. Squarely addressing this question is the entire point of this post. What did you think of its claims?)
As far as i remember from the original book review the main idea of Georgism is to make profits impossible that originate from the sole possession of land without any personal contribution. As the worst form of this profit it has to prevent speculation with land.
LVT is just one idea to do this, and i agree it would have very bad consequences. So lets think what else could we do to stop land speculation.
I didn't read the whole thing, I read the first part and you are confused.
The sale price of a piece of land is its capitalized rent. So if I think I can make 10,000 dollars from a piece of land per year (it doesn't matter how, from a conceptual perspective it could just be a money tree that spits out 10k/yr) and that source is reliable, then maybe it gets capitalized for 20-30 years. So it sells for 250k, making its capitalization rate 4%.
This would be the land value tax. 4% of the assessed value per year.
That equals a 100% Land Value Tax, because the land value tax, as you suggested, is a full tax on the amount of income you make holding a piece of land solely attributed to its location. As Part 3 suggested, rents get fully capitalized in land value, so that's essentially the same as its appreciation rate.
I totally understand that, and it may be a fine model for some statistical calculations, but it doesn't work out in practise.
If i plan to make a cake tomorrow, and we agree that you supply me with all the ingredients and half of the cake is yours. This works well and you will get your share as soon as the cake is out of the oven. But there is just impossible to give you your half of the cake the very moment you give me the ingredients or even when we make the plan. This is just real world physics and can't be changed.
I just can't give you something right now that probably will exist but isn't here yet. The same is the profits of land: I can pass on to the community every single dollar that get in my hands from the fact that I own that land. I would be happy to do that tomorrow and I would also agree to pay an equivalent of non financial advantages I practically get right now.
But i can't give you some money now that i will probably get in a few years. Statistically this looks the same but in practice it makes the difference of being ruined or not.
Well, this is the point. Potential rent is imputed income. You COULD make 10k/yr on that piece of property. If you choose not to do that, then you're underutilizing the property and making the community worse over all.
In regards to homes, we've let you guys way overemphasize homes. The VAST majority of land value is in urban land which is at LEAST mixed use, but heavily used for productive activity, not housing.
When you do talk about homes, then we already pay property taxes. That isn't something that is new. Now we're suggesting that 1) The purchase price of your home is lower, 2) Your wages are higher 3) The taxes on your wages and investments are lower 4) Whatever is left over becomes a CD.
I think you'll be able to pay the LVT. And its empirical, as well. In Harrisburg when they implemented a split rate tax, the average homeowner paid less tax, and business development increased.
1) The fact that you COULD make some income is a speculation itself. As i understood it, George wanted to stop all speculation on land value. Nobody can promise that I actually can generate this income even if i try the hardest, there are too many external factors.
2) Enforcing the 'best' utilization of some land is not a good idea in my opinion:
- Using land in the most financially profitable way is often not the same as using it in the way the community profits from. This is like if you say that everything that increases GDP is helping society to develop. Just imagine me demolishing your car. This would increase GDP because you need a new car and you will spend more on insurance. But it hurts your well being, it will make others afraid about their cars, it is a waste of resources... I just can't find anything positive about it for society.
- every move to a new location comes with a lot of cost, this is for a business and for a private household alike. It's not only moving all the stuff, it's also searching a new location, doing the paperwork, the risk that the location has disadvantages you didn't think of, telling everyone the new address. This all consumes a lot of time and mental energy that could be used better to develop the business itself, or to enjoy life.
- Forcing everyone to change the use of land at a certain time means a lot of cost to the economy and a waste of resources. Imagine you built an apartment block some 15 yeas ago witch was the best possible use of this land in that time. Than the area develops faster than usual perhaps there was a new theme park build somewhere around 5 years ago. Now this park florishes, a lot of tourists come in and the 'best' meaning most profitable way to use my land would be to build a hotel here. So is it a good idea to kick all your tenants out, demolish your building that has payed back only halfe of its construction price and build a hotel? How long will this last, do i have to demolish it in a few years to build a high rise?
- often placed are very nice and very attractive exactly because the land is not used efficiantly. This applies for many tourist destinations for example.
What about economic crashes? Part of my reluctance around this theory is that the Celtic Tiger era in Ireland came to depend very heavily on the construction industry and the housing bubble, and when that all blew up, you had houses that were in negative equity. Landlords couldn't rent at the then market price because nobody could afford to pay, so rents decreased and landlords were happy to get any tenant they could.
As the economy slowly improved, rents went back up because now people could afford higher rents and landlords could be choosy about tenants.
So say I'm a prospective landlord who thinks I can get $10,000/year from that piece of land. But oh no, the bubble burst, now at most I can only get $6,000/year in rents. Is the LVT - which was based on the $10,000 valuation - now reassessed, or am I paying more than the land is now worth (and the value of the land now wavers depending on 'are we living in boom times or bust times?')
Georgist tend to think, with pretty decent empirical evidence, that crashes are CAUSED by land speculation and with an LVT the curve would be smoothened and they're be significantly less likely.
Fred predicted the real estate driven recession of 2008 in 1997 and predicts another downturn on the 18 year cycle in 2026. He passed away this past year, unfortunately.
But yes, if land values decrease then the land should be reassessed down to a lower value.
Nice house you got here, it would be a shame if my regression analysis will happen to it.
Regression analysis or not but Georgism will certainly create situations where people are forced out of they homes because they can’t afford paying taxes for it. There is this popular movie plot with a thugs bullying family to sell they home so more expensive real estate can be built instead of it. Well, with LVT you don’t need those thugs.
Also you mention that there is small amount of complaints about property assessments. But it might be because property is usually highly undervalued. If you will get to your 85% you will get tonnes of complaints. And this channel of communication will favour companies with huge lawyer stuff.
I am not a Georgist, but far as I can tell, the responses are:
1: incrementalism. The tax would start very low and ramp up over years or decades so people would have lots of time to move.
2: that’s the whole point. People living above their land rent means are depriving their communities of better developments that could take their place. Society is better off when they leave.
3: the land rent wouldn’t be that high for most cases.
If the tax is announced, the current owners take the price hit immediately as their sale price will factor in the coming LVT. An LVT that was adopted after a warning period of 9 years would half prices immediately if the time value of money is 5% a year.
In practice it wouldn't actually be announced that the tax is going to ramp up. If it's successful, the rates will be continuously negotiated each year or two while other taxes are cut. In the US, it basically has to happen this way. Every 2 years, it's a new Congress and tax rates are renegotiated. Even if a full transition were formally announced, the next Congress could just undo it.
In actual practice, the rates will never ramp up because land owners are politically powerful.
One thing I keep wondering about while reading this... How do we deal with the incentive to lower one's land value, and by extension land tax, by being as obnoxious as possible and discouraging everyone else from living nearby? (Pigovian taxes, I know, but how do we calculate them? It may be tempting to make them insurmountably large, but that might discourage operation of useful, or even necessary facilities.)
My intuition tells me not to put too much trust in market value, and that land tax should probably be at least partially detached from it. Not sure how that squares with the whole theory, though.
If you have four brothels on a city block, each will lower the value of the surrounding land. Making one into an apartment building will not change the value of land - it requires all of them to be removed to clean up the area. If we need to take into account all subsets of transactions, not just each marginal sale, pricing becomes harder.
This is not farfetched as basically gentrification is this process and can be done, but it is tricky. A few hold-out crack houses can keep an area poor for quite a while.
I don't know if it's been said in some other comment(s), but personally I really feel like some discussion of the consequences of what examples of LVT have existed (and especially those which have been abandoned) are warranted. Basically I want an answer to the question: if the LVT is so great, why isn't everybody doing it? And if its effects are there even for incremental advances, why haven't countries with LVT gradually increased the LVT rate (presumably while lowering other rates)?
I thought a bit more about the LVT and think that if it becomes federal tax, avoidance is trivial. Consider a wealthy city surrounded by fields. Each plot in the city has a large unimproved value because it is next to other plots in the city where many people live and work, so each plot is taxed a lot. Now the landowners setup a new company City Inc, swap all their plots for shares in this new company and setup company governance to replicate their old rights. All the land in the city is now a single plot owned by City Inc. This plot is surrounded by fields. Now, the unimproved value of this single plot is pretty low, all the network effects are fully internalised to improvements of the plot and are not part of its unimproved value. So City Inc pays very little in LVT.
Property clearly can't be valued once we allow mergers and divisions of plots; your example is this taken to extreme. What is the value of 100sqm within Disneyland worth? (A vast amount, you could build a hotel there!) Is that true of every separate individual 100sqm within Disneyland? (If not, why not?). So is ALL of Disneyland worth "whatever value you just found for 100sqm" * number of 100sqm plots that fit within? Great, buy them all up, fill it all with hotels, see how much value you really have!
Your example is exhibit N of "hypothetically empty land just does not have objective value". (N, number of problems, is large.)
To be clear, I am of course agreeing with your great point. But whenever you have actually a LVT (so far as I know) you *do* get ad-hoc around plot mergers or splits. Just part of the endless complexity you need to add to keep things looking remotely sane.
The model inputs based on open-market sales of nearby comparable properties seem like the soundest, and most important. Wouldn't a 100% LVT destroay these inputs? And wouldn't even an 85% LVT degrade their quality significantly (by magnifying distortions and overheads)?
Whenever land changed nearby for a positive amount, that would be evidence that the local rate was too low. Whenever buildings were sold for below their replacement cost then that would be evidence the rate was too high.
Having an asset that sits near zero should not be a problem so long as the improvements _ that asset sell regularly. The unaccounted value of the land is then the difference between the sale price and the value of the improvements. I do worry that this might cause actions that game the system.
In practice, my take is that an 85% LVT would be calculated with a methodology such as estimated fair market land value in a transaction * 100/15 (grossing up sales land value for assumed capitalization of the LVT) * an estimated annual cap rate. If the estimated cap rate is, for example, ~3% to ~5%, the math simplifies to estimated land value in a transaction * ~20% to ~33%.
An issue, however, is that most observed market transactions are for a bundle of "land + structures / improvements". Suppose that the pre-tax value of a property is split 50 / 50 between the two. Under an 85% LVT that's fully capitalized into land value, the land value drops by 85%, so land now represents ~13% of market transaction value ( 7.5 divided by 57.5 ).
So the LVT on this hypothetical property is now highly sensitive to (1) changes in overall value of the land + structures/improvement bundle and (2) the value assigned to structures/improvements.
If the total assessed market value increases by 6.5% and that value is all categorized as land value, then LVT increases by ~50%.
Similarly, holding total assessed value (for land + structure/improvements) fixed, decreasing assumed structure/improvements value by ~7.5% would increase the assumed land value (and hence LVT) by 50%.
I'll also note that this arithmetic is still relevant even in high land value areas that Lars used as examples in part 1. In that post, he references an estimate that average land share of property value in San Francisco County is ~70%.
Applying an 85% LVT (assumed to be fully capitalized into market value) reduces land share to ~25% of observed transaction value. So a 6.5% increase in assessed market value increases LVT by ~25% even when running these rough calculations for an area with very expensive land.
Lars, thank you for your hard work in writing this series. It was very illuminating!
Have you come across the other 19th century economist Silvio Gesell in your research? He was sort of a German version of Henry George, but came up with a slightly different, and IMHO complementary attack on economic rents. His land reform proposal involved the government taking possession of all land and operating annual auctions for their use, which as far as I can tell is the game as georgist LVT but with more steps and assessments done by auction.
But perhaps more interestingly, he also found that there was a huge untapped source of economic rents in the financial sector due to monetary policy, which causes there to be a gap between the obtainable interest rate of a loan (say, 10%) vs the actual calculated risk (say, 5%). The difference is an economic rent making the wealthy get wealthier through no action of their own. At the turn of the 20th century, Gesell was writing about precious metal currencies, but it still holds just as true of fiat money today, except the seignorage is now captured by banks. Like Henry George, he suggested a 100% tax on this economic rent in the form of demurrage--a holding cost to money, which then trickles into all other financial instruments.
I think there's a good chance that a georgist LVT plus a gesellian demurrage money-holding tax would together provide enough government revenue to replace deadweight taxes. (Quick estimate: there is $20Tn M1 dollars in circulation. A 3% demurrage rate would generate $600bn per year. Enough for medicare at least. But like LVT there's arguments that taxing this wealth holding rent will generate more economic activity in a positive loop, and 3% was a conservatively low rate.)
Would LOVE for you to research Silvio Gesell and add his monetary reforms to your series.
Do you have any source for those economic rents being extant in the modern day? I can readily believe they existed a century ago, but the modern financial system is extensively optimised to pounce on arbitrage opportunities and what you described sounds like a massive arbitrage opportunity
Can you explain what the arbitrage opportunity is? I don't believe that there is one here, at least not one that hasn't been already exploited to the limit.
The problem is that money itself is a monopolized resource. It is not a natural resource, at least not since the gold standard was abolished, but it is a state-granted monopoly managed by the central bank. If there are people of sufficient creditworthiness wanting to take out $250bn in loans, but there is only $200bn in literal cash available to loan out, then only 80% of the people will get their loans. This is inefficient for two reasons: (1) the other 20% aren't as economically productive as they could have been, which is an opportunity cost; and (2) the people who get their loans do so presumably because they are willing to pay a higher interest rate, the difference being an unearned rent that accrues to the bank.
But, you object, what about fractional reserve lending?! You're right, banks get to magic money into existence for their loans, which complicates things immensely to such an extent as to make any reasonable person's brain hurt. But the same basic problem still exists: if there are $250bn demand for loans, and cash at hand plus reserve requirements allows for an aggregate of $200bn in loans to be made, then the above example still holds. The 80% get their loans by paying a higher premium (the bank's rent), and the other 20% are stuck being unproductive and/or underemployed.
You can't arbitrage this because you can't literally make money. Only the central bank and its licensed and regulated client banks can do that. (Psst... you can too with That Thing That Is Definitely Not Called Ripple https://rumplepay.com, but that's a topic for another day.)
The modern monetary system allows states to manage their economies through interest rates and reserve requirements. A economy is most productive when interest rates and reserve requirements are zero because then the risk-free interest rate would also be very near zero. But they can't actually do this because inflation would go through the roof. Demurrage (applying a holding cost to money) on the other hand *does* allow the central bank, or whoever sets the demurrage rate, to effectively get the same thing without exploding the money supply and causing inflation. And it does so, coincidentally enough, by confiscating those rents collected by banks via the phenomenon of the risk-free interest rate.
I sort of believe in aspects of Georgism, in that a tax on land or at least wealth is fairer than most existing taxes.
But I actually think this article missed the point. It isn't that its mathematically difficult to assess the value of the land, it's that the value of land is instrinsically tied to the developments on and near it.
If I create a data model which says "proximity to high quality employment", "proximity to famous businesses", "proximity to people with high incomes" is valuable, and note that this model says "the land under Google's offices is super valuable", and then use this to level punitive taxation on Google, in what sense am I taxing the "land"? All I am really doing is levelling a tax on Google and companies like Google, and all this in practice would mean is those businesses move offshore, or at best geographically fragment themselves to regions where it's almost impossible to assess their land value granularly enough to catch them out.
Combine this with the comments about expropriation of landholders being necessary because they are the moral equivalent of slaveholders, and this starts to look less like a proposal for efficient taxation, and more like warmed over authoritarianism. "Oh yeah unlike a traditional authoritarian regime, we won't take all your stuff, we'll just escalate taxation on your landholdings until the point the land is worthless and the level of taxation bankrupts half the businesses unless they move"
Just to build on this, say Google says "oh you Georgists are right, we've been unfairly exploiting the enormous land value in California, we're going to give up our $20 billion in annual tax fees and shift our business to the middle of nowhere in rural Texas, where the land tax is only $100 a year - thanks" - how does the Georgist respond to this?
It seems to me you wait for Google to set up their new office in rural texas, and then declare your models show that the land under Google in rural texas just happens to now be valuable - the fact the "value" seems to follow Google wherever they go and has nearly nothing to the land itself seems to be purely incidental to the Georgist in practice, despite part 1 of this series being about the importance of land.
What Part 1 was explicitly getting at was that, even as fundamentally digital as our economy is, physical location is still important and always will be.
But you're right, value moves around with valuable things. Google presumably is in a very expensive place, because it makes it easy to recruit and retain talent, its a desirable place to live, etc, etc.
I don't think you'll see a massive flight of capital out of an area as a result of a LVT. Only idle landholders, which is what we want to leave.
If taxable value moves around pursuing high value people and businesses under a Georgist system, it's clearly not a value of the "land" at all, and this is why as much as I like some of the underlying principles of Georgism, this explication of it reads more like "from each according to their ability".
And of course the corporate response to this will be to move to low tax juridictions, under the Georgist-nationalist model proposed here, Google simply needs to offshore their operations from the US to say Canada, at which point they're deemed good corporate citizens in the US since they are no longer exploiting the "land value" inherent in the country.
So, note that Google is *already* paying a massive tax to have its HQ near SF, in that the market salaries are massively inflated compared to equivalent jobs in other cities in order to pay the high local rents - that's land value right there.
If Google moved its HQ to some middle of nowhere paddock, their land tax would be negligible, but they're not going to do that - their staff want to live in a city, so Google would move somewhere with amenities, and a land tax is a fair way to pay for those amenities.
Steelmanning your argument - Google would not move to avoid a land tax worth a few percent - therefore it certainly would not move to save a much larger land tax that would destroy its revenues entirely.
I have not read all the comments, apologies if this idea was already mentioned. But there is evidence that property tax valuation can be made "self-enforcing."
Here is a self-enforcing protocol for determining property tax: the homeowner decides the value of the property and calculates the resultant tax, and the government can either accept the tax or buy the home for that price. Sounds unrealistic, but the Greek government implemented exactly that system for the taxation of antiquities. It was the easiest way to motivate people to accurately report the value of antiquities.
If implemented literally this way, it would also allow rich people to harass honest poor people, by buying their homes at market price, and selling them later.
I mean, if the value is estimated *correctly*, it means that if I buy it from you at that price, I should be able to sell it for approximately the *same* price later, so there is only a little transaction cost for me, and also some risk that in the meanwhile the market value may change (but it may change in either direction).
The transaction cost of losing your home and moving to another place would be much higher for you, even if you can buy the new home exactly for the money you received for the old one. You have to move the furniture, tell everyone your new address, all decisions you made in the past based on "this is close to my home" are invalid now, you need to build relationships with new neighbors, etc.
So there should be some safety margin, such as buying for 150% of the declared price, which would mean that if you are a honest person and some millionaire decides to harass you this way, at least you make some money.
The safety margin, such as buying for 150% of the declared price, more-or-less solves this problem—and it's effectively equivalent to letting people buy for 100% of the declared price, and making the tax 67% of what it would otherwise be. Then you can just declare a 50% higher value than its actual value, or however much safety margin you want.
Works for property and other goods where an actual transaction in the good in question can be done at a reasonable transaction cost. It is not clear how this could work for the double abstraction of the Georgian land valuation, as they want to tax *unimproved* land value in a *hypothetical world where the land value tax is 0*. Each of those assumptions makes a simple sale impossible.
Another idea about property owners setting tax assessment values, which potentially enable buyouts:
Instead of allowing buyouts, allow people to pay tax on higher valuations in exchange for "Right of First Refusal." (Investopedia: a contractual right to enter into a business transaction with a person or company before anyone else can.)
Could this result in tax being collected on the full market value of the property, with the owner paying the portion they regard as a fair value, and the prospective buyer paying whatever additional amount they feel it's worth?
A couple challenges I think the author could take more seriously:
- Property purchasers will be incentivized to bifurcate their purchase price into two. One for land, one for improvements. They'll game the system. This is important because the ones most capable of doing it are the existing institutional landlords.
- It's possible to improve land without building something that is considered an "improvement" (e.g. environmental clean-up) and it's bad public policy to disincentivize those improvements. Presumably the value of the land, and therefore the tax, goes up once money is invested into "fixing" land.
"Property purchasers will be incentivized to bifurcate their purchase price into two."
In the USA this already exists. An entire industry called "cost segregation studies" that divide properties into not just two but many categories to maximize depreciation deductions for taxes. It is a real thing, although there are abuses and the IRS watches for them.
In order to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset or property owned. Property, whether acquired or constructed, often consists of numerous asset types with different recovery periods. Thus, property is typically separated into individual components or asset groups having the same recovery periods and placed-in-service dates to properly compute depreciation. When the actual cost of each individual component is available, this is a rather simple procedure. However, when only lump-sum costs are available, cost estimating techniques may be required to "segregate" or "allocate" costs to individual components of property (e.g., land, land improvements, buildings, equipment, furniture and fixtures, etc.). This type of analysis is generally called a "cost segregation study," "cost segregation analysis," or "cost allocation study."
Thanks for sharing, this is very interesting. I was thinking of forms like the PT-61 in the state of Georgia where a real property purchaser has to disclose the purchase price of the real assets involved in a transaction. Many commercial property investors attempt to game that system by separating the value of leases from the inherent value of the building improvements sold, but you could imagine where this type of trick gets extended to one sale price allocated to land and the rest allocated to the building on the land, solely to trick the local assessor. I wasn't even thinking of the depreciation angle which is important because a new land tax might push real estate owners to lean even more toward attributing a greater % of purchase price to buildings instead of land, and therefore greater depreciation tax deductions.
I also see many of the comments treating Georgism as an all or nothing proposal. If a land tax is more "fair" and represents fewer dead weight losses in the economy, then an incremental increase in tax on land offset by lower sales tax rates might still be viewed as ideal. Given the possible opportunity to "game the system", it might even be optimal (i.e. most "fair") to implement a small new tax on land instead of 85% like the author considers.
The flip side is when the property gets sold. For USA income tax, land doesn't depreciate and buildings do. Lots of moving parts, but sometimes this gives the buyer and seller opposite incentives, where the buyer wants the price to be all buildings and no land, the seller wants the price to be all land and no buildings.
Hmm... maybe if they both had to agree on how the price is being allocated...
This already exists for selling a business. IRS Form 8594, Asset Aquisition Statement.
That's for situations where a buyer is paying for "goodwill," or the "brand value" of a business. Seller wants all goodwill and no assets, buyer wants all assets and no goodwill. (Well, directionally if not exactly.) That form sorts it out, they both have to file a copy with their tax return, the IRS can make sure it matches.
Phase it in gradually, sell it as a fairer property tax (don't punish people for improvements, by George!), perhaps limit it to cities and you've got a stew going.
At the part where you said assessors use (lack of) complaints to decide they're doing a good job, I was thinking: Well, that would go a long way towards explaining chronic under-assessments! You have an error signal that squawks when you're too high, but not when you're too low.
On what questions a follow up should address (if they haven't been addressed already—I haven't read the series in full):
(1) How a LVT would be free of deadweight losses if city land is taxed at based on its market value, rather than at the much lower value it would have as farmland. The reason a LVT that taxes the agricultural value of land is, in theory, free of deadweight loss is that human activity doesn't affect the tax, and it thus doesn't change incentives (a fixed head tax is another tax with this property). However, taxing city land at much higher rates means that human activity affects it, and that means it can disincentivize that activity, and it's no longer free of deadweight loss. (Many comments have asked similar questions.)
(2) Would the extra LVT from city land (above what the tax would be for it as farmland) go to the city government, redistributed in some form to the residents of the city, or to a higher-level government (county, state, national), and redistributed also to people outside the city? I see major problems with both approaches (deadweight loss in the latter cases, spiralling rents and taxes in the former). https://astralcodexten.substack.com/p/does-georgism-work-part-3-can-unimproved/comment/3984715
(3) Would the owner of any plot, however small or large, be taxed based on the value it would have if it were unimproved, but surrounding lands were developed as they are in reality? Would a company town pay LVT based on the value of the land as farmland, but if it's sold off as plots, would the new owners pay a much higher tax? (The City Inc. question, asked by Long Disc. It's the most relevant if the LVT would go to a higher-level government.)
(4) Would investors trust that no other asset class would be effectively expropriated with some excuse/argument, after lands are? If investors don't trust that, there would be a huge deadweight loss.
I think I understand the problem of Georgism. It thinks the land has value beyond the improvements. If we take for example Manhattan, a very expensive place to live, and remove only one improvement - for example, a functioning sewage system, the value of the lad would plummet.
Georgism solves the issue of Free riders, people who do nothing and gain from the improvement of others - the owner of an undeveloped land in Manhattan is rich even if he didn't do anything but hold the land.
But it hurts the collateral actions - as a group, land gains value because of improvements, for the entire region. What makes Manhattan expensive is that it has lots of buildings and a Metro and bridges and electrical net and everything else that makes life in Manhattan Good.
It is not the land itself.
So Georgism solves the individual free-rider problem, but taxes the very thing we want - land improvements.
We get those by Good governance, well thought laws, inducing industry and builiding good infrastructure.
Georgism is basically a Tax on all of these.
Why would people build a Metro, if it will raise taxes on them?
"Georgism solves the issue of Free riders, people who do nothing and gain from the improvement of others - the owner of an undeveloped land in Manhattan is rich even if he didn't do anything but hold the land."
"So Georgism solves the individual free-rider problem, but taxes the very thing we want - land improvements."
The impression I got is that Georgism could potentially set off a competition for everyone to out-develop their neighbors. Higher development makes higher demand for land, then higher taxes which fund the Metro, which people will support if it's a net benefit to their properties in spite of causing yet-higher land values and taxes.
That really depends if the taxes are local - but even if it is so, it would just tax all the gains away to something else. Maybe of the tax rate was something like 20percent.
There are a few comments concerned about accuracy of valuing land on a large scale. I don't really have anything to add on an intellectual level but, as the article mentions, Australia happens to be a place where this is done for the purpose of taxation, and a lot of the data is freely available for perusal. https://qldglobe.information.qld.gov.au is a GIS representation of a bunch of things for one Australian state, and Layers -> Add Layers -> Economy -> Land Valuation will let you browse around any property in the state and see the latest official land valuation. My lived experience as a homeowner is that it's a reasonable estimate, but is a bit slow year to year in responding to property market shifts.
1) My impression is that the primary thing public land assessment affects is property taxes. If true, doesn't that mean that landowners have every incentive to make their assessments as low as possible? If that's the case, then I wouldn't expect "low rate of complaints" to be a good predictor of assessment accuracy.
2) What in the world does it mean to put a p value on a regression? What's the null hypothesis? That there's no structure at all to the data? Wouldn't that basically always be false?
You should look into Glen Weyll and Eric Posner's book Radical Markets and their COST; that's what introduced me to Georgism. The really elegant solution for any form of a wealth/property tax (including LVT) is self-assesment with a robust market with negligible transaction costs. Imagine a system where your house and land are permanently listed on an exchange. You set a price for what it's worth and anyone who pays that price (or some small percentage e.g. 5%) above it can immediately buy it no questions asked. You are then taxed based on a fixed percentage of what valuation you listed. This has a couple of benefits. 1) Accurate pricing. Lowering your taxes incentivizes you to undervalue your property, BUT if you value it too low someone else will just buy it off of you and you'll lose your property. This forces a system whereby you always want to accurately price your property such that you won't be overpaying in taxes, but won't be forced to sell your property for less than what it's worth. 2) Utility/Resource maximization. Differential preferences make the world go round. Each person is taxed according to what his individual value is for an asset, and if someone else has a higher value, there will be a transaction. Now the person with the highest utility gets the property and we've increased gross utility/productivity in our economy. Whoever has the best use for the property will naturally get it.
One thing I think should also be touched on is mass purchasing of properties by the likes of Blackstone and others. Given the financialization of real estate and mortgage markets the natural buyer is always the entity with the lowest discount rates and borrowing costs. At the end of the day what matters most isn't the purchase price of the house but the yearly cost of ownership = mortgage + taxes + maintenance + utilities. Large institutions can borrow at much lower rates, can perform maintenance much cheaper through economies of scale, and can sometimes use market power to negotiate special tax abatements. This leads to a scenario where BX's personal "cap rate" is 3% but individual landowners is 6%, so they buy all the housing offering a 5% cap rate to the property owner's joy and then jack up the rents once they have a monopoly.
>> Pretty much everybody agrees on the basic algebraic formula for deriving land value:
>> Total Value = Land Value + Improvements Value
Can I put up my hand and say that I think this is utterly, miserably wrong.
The very notion of "land value" implies a degree of fungibility that simply does not exist in reality. As a rational economic actor I am expected to be indifferent to two parcels if they have the same value (or profit potential maybe?). Suffice to say, this is not how most human beings behave or feel.
In modern society, the largest component of "land value" is not a property of the land itself, it is a property of the local human infrastructure (i.e., community). This is complex and two-way. Residents themselves both derive value from and contribute value to their community. As such, residents are not fungible in the value calculation. Any model of society and economics that does not include some notion of the value of community is going to be at best useless and at worst is going to have downright evil consequences (hello supercharged gentrification!).
While I am sure that there is a fantastic transitional plan to be really gentle about evicting people from their communities to reallocate the places they live to more efficient uses, I doubt this plan would survive the ensuing riots. So yes, while I am sure that it is a far more efficient use of Silicon Valley land to bulldoze every single family home and replace them all with high-rise apartments for 25-year-old tech workers, you would need to have a communist level of disregard for the damage you would do to the community by making it impossible for the people who currently live here to raise families without moving away.
Something that just occurred to me is that I already have a somewhat explicit valuation on the improvements part of my house, in that I need to figure out a number to put on the insurance for full replacement value. I would guess that the vast majority of urban homeowners have this too, wouldn't this be a good way of determining improvements value? Then add it to the total sale prices which are already fairly well estimated and you're left with a good valuation for the land only.
I feel like this has probably been addressed and I forgot but has there been discussion about using harberger taxes to assess land ? It would be difficult to implement since the improvements would need to be excluded but maybe there's something there.
I'm basically a georgist, and don't think the valuation problem is intractable, for most of the reasons you've described.
However, I was surprised that you didn't seem to cover in much detail the fact that in a world where 85% of land rents are taxed away, land values are roughly 15% of their untaxed value, so presumably the noise in any market-based valuation estimate goes way up (land worth much less relative to improvements).
I think the solution to this is probably estimating land rents directly (which would need better public data on rents) or a self-assessment mechanism.
I think you can solve all of the problems of assessment by just doing what apartment/condo owners do. Target 95% occupancy (or whatever number you like), and increase the price when occupancy exceeds the target and decrease the price when it is under the target. You can do this *entirely* algorithmically so there is no room for corruption. Either someone is paying their land tax (set by an algorithm) or they aren't and anyone can move into the property.
The algorithm would weigh nearby plot occupancy based on the square of the distance (in a perfect world infinitely so like gravity, in reality up to some finite distance). You can have a limit on how much the tax can increase in any given year to protect people from being suddenly overburdened with taxes, and you can have the tax rate determined at the start of the year and paid at the end so people have a year of knowing what their tax rate will be (thus time to move if it is too high).
This will result in the government extracting the maximum rent possible (something governments like) without being such a burden that no one wants to live there (so no Detroit problem). This aligns incentives (as indicated in this article) because they explicitly want to attract people. If your policies are driving people away, your income to enforce those policies is driven away at the same time and those willing to stay pay less as their peers leave until equilibrium is reached.
What I *really* like about this style of assessment is that the implementation costs are essentially as low as is possible for any kind of taxation. The amount you pay is defined by an immutable algorithm that has no human influence once it is launched, there is almost zero room for gaming the system by any actor, and the overhead cost of collection/enforcement is incredibly low (if tax goes unpaid, title transfers to first person who shows up and starts paying rent).
The two downsides to this that I can think of are:
1. Hyper inflation may outpace the maximum rate of change of tax rates, which can lead take a very bad situation (hyper inflation) and make it worse because the government now is unable to collect enough taxes to operate. One could argue this is actually a good thing because it incentivizes governments to be *incredibly* careful with their local currency, which is the opposite of the current incentive structure where governments functionally print money (leading to inflation) because it is "free money" for them.
2. There is incentive for people to be dicks and drive their neighbors away (as that lowers their taxes). I think this is a significantly bigger problem than the hyper-inflation one, but I believe it is already a problem with Georgism in general. I don't have an obvious solution to this particular problem, though at least the government is incentivized to address it with local policies and enforcement actions.
I have a business investing in vacant land, so I can chip in a little info regarding data quality in most of the US: it's terrible.
There are 2 basic sources of real estate sales data: the Multiple Listing Service (MLS) used by realtors, & county data. Many (most?) land transactions don't go through realtors, & so don't show up on the MLS. (Neither do any commercial or industrial properties - the MLS is just for residential real estate). And county data is typically awful, for a couple of reasons:
First, because land sales are much less likely to involve banks, they can be much more informal. Grandma sells her grandson a piece of land for 10% of market value to get around inheritance tax. Or you buy a piece of land for $1000 + a pickup truck - the $1000 shows up at the county as the sales price, but not the (say) $20K truck. Or the seller finances the land to the buyer, which allows them to charge a higher price than they could have gotten for a standard cash sale.
The other big issue is multi-parcel sales. Say you sell 10 lots for $100K total. Some counties will record the sales price of each lot as $100K, thus over-estimating values by an average of 10x. Some will just divide evenly & show the sales price of each as $10K - which will be fine if they're all the same size, quality & location. But what if one of the lots is 0.1 acres in the middle of nowhere, & another is 100 acres in a prime location? They're both showing up with the same $10K sales price.
Finally, in most areas, there are a lot less sales of land than of buildings, meaning the raw amount of data points is limited. This further means that all of the above distortions will have an outsized effect on the small data pool.
It also means there may not be any truly comparable properties to base a valuation on. Consider a hypothetical 50-acre tract, the last large parcel in the area, surrounded by 10-20 year old housing developments. The only nearby sales in the last decade are quarter-acre lots in subdivisions. The closest 20-100 acre sale was 3 years ago & 30 miles away, in another town with totally different characteristics.
It is generally accepted among land investors that land cannot be accurately valued, given the poor data available. Instead, everyone just ballparks it & buys at a big enough discount to cover the uncertainty. The same problems plague appraisers. And Zillow - if you check you will see that most houses have a Zestimate, but land almost never does. They're not very accurate on houses, but they don't even try to price land.
I wanted to learn data science, so as a project I pulled all the real estate data from a local county with good, publicly-available records, & used python packages to build a regression model. It was mediocre - mostly it was close to my manual estimates, but unacceptably often it would be off by a factor of up to 10x in either direction. Even above-average county sales data just isn't good enough to build an accurate model. Others people with way more skill in both investing & data science than me have reported the same thing.
With respect to scraping data from Zillow - people have done so, and been immediately & permanently blocked from accessing the site. There are some applications out there that streamline a manual copy & paste process, but you wouldn't want to do the whole country that way. Besides which, as noted above, the sales data would still be woefully inadequate for making accurate valuations.
Correlational analysis, whether linear or nonparametric regression, seems like the wrong tool here. We want to know the *causal* effect of size, age, number of bedrooms, etc, on land value. That requires causal inference, not predictive modelling.
I feel like this whole series could benefit from an injection of public choice theory. There are many potential points of conflict between landowners and the government. In theory it shouldn't matter what level of government we are talking about but in practice it does.
For instance with the argument about corruption, with current property taxes if you bribe the local assessor to undervalue your property then you benefit yourself and hurt the local community. Local democratic control of the assessor will work against this sort of corruption and push towards fairer land values.
With a Land Value Tax going to the national government, the incentives are all messed up. The local assessor hurts the faceless suits in Washington when he undervalues your land and helps out his friend in the community. Local democratic control of the assessor pushes towards systemic underappraisal of the land.
To counteract this you need to impose centralized standards and make the assessor an agent of the national government. But then you lose out on the local knowledge.
The same thing applies to discussions of zoning. Currently restrictive zoning rules pit two local groups against each other. Those who want to use the land intensively lose out from restrictive zoning while those who want to use the land less intensively (low density housing or dinghy apartments) gain from it.
With a Land Value Tax you lose the local stakeholders in favor of intensive usage with generic national interests. That means that to the extent zoning decisions are made locally they will be even further skewed against development.
Yes assessment is the major challenge for implementing a land value tax, and generally assessment for property taxes in the US is not done very optimally. This is really a good opportunity to do a lot of improvement of assessment practices and incentive structures.
In any case, the assessment problem is still better than the issues with the current tax code. You can't hide land in a Swiss bank.
It isn't really an assessment problem, it is a conceptual problem. The methods discussing here aren't estimating the "value" of the land, they are estimating the "price" it would sell for, which isn't even remotely the same thing, it is the intersection of supply and demand.
We then have a bizarre circularity where the tax is determined by a modelled estimate of what the price would be in a transaction, and a problem where the transactions themselves take place in an environment where radical expropriation of property value exists.
I don't think it even conceptually makes sense, it all rests on a chain of nonsensical assumptions - e.g. market price = land price + replacement value price, which is not remotely accurate even in a normal market, let alone in one where the landholding public lives in fear their property will become a noose around their necks.
Isn't the entirety of Georgism a band of thugs with the title of government threatening to kill the peasants if they don't pay rent?
To be fair, you could take the logical extension of Foucault's work on power to apply here and say that applies to all taxation. I would worry that Georgian is like communism though: an ideology which might be theoretically sound (although I personally don't accept that part II proved the key point that costs won't be passed on) but which on practice will be perverted by the fact someone has to wield power over the system, and there's no way to ensure that person is and will remain the perfect Georgist.
I think that is a fair criticism as well.
All government is thugs threatening to kill people if they don't pay their taxes, yet we somehow get by
Yes that's true, all I am saying is the argument that landlords are evil because they expropriate rent, therefore we should implement georgism, whereby the government will expropriate rent on a massive scale, does not seem compelling. Is this the "two wrongs make a right" school of good governance?
Lvt paired with a Japanese style national nesting doll zoning system could really shine
I was just going to say this. Even if you accept everything presented in these articles, there is huge public choice component, especially when it comes to assessment. I’m not even worried about blatant corruption as much as I am politicians tweaking assessment techniques to try to achieve their (and their constituents) preferred outcomes. That’s not necessarily a deal breaker, but it requires some thought.
My take always comes down to "are the problems of this system of governance a better baseline than what we have, and can we incrementally implement the ideas to test falsifiable hypotheses."
Georgism poses many falsifiable hypotheses, can be incrementally tested, and I think the potential downsides are more manageable than our current problems.
Testing those hypotheses is hard, but I take your point.
Still, incorporating insights from public choice could improve the theory and hopefully result in better real world outcomes.
Here's one idea I'd consider: potential increases in land value are a key part of how the existing population of an area is "bought off" to get political support for nearby growth and development. Or, at least, "bought off" enough to have a chance at overcoming political opposition.
There are of course caveats. Not everyone owns land, though the population with some land ownership is large in most places: homeowners, small landlords, etc.
In general, the observed reality seems to be that most people see more inherent downside than upside from nearby growth and development. There's more traffic, there's more noise, maybe it's not aesthetically pleasing (e.g., blocks a view), maybe it makes the local public schools more crowded for a period of time. There's disruption during the time period of construction, including additional infrastructure.
That may not seem wholly logical, but it makes more sense taking into account (1) people self-sorting to the types of places they prefer to live and (2) loss aversion.
But under a high-value Georgist LTV, those gains in land value are taxed away. A Georgist reply to that argument is that the carrot of land value appreciation has been replaced with the stick of a high-rate LVT. The high-rate LVT makes it very expensive for a landowner to use land for a purpose far below its highest and best economic use. And perhaps that would largely work in places where land values are already very high.
But what about the people elsewhere who are reading the news and seeing how an LVT impacted homeowners in those high land value markets? In those lower-cost cities, suburbs, exurbs, and rural areas, here are the conclusions I'd draw:
(1) If I'm a large landowner, I can't make nearly as much money from growth, so why devote much effort to fighting for it?
(2) If I'm the median homeowner, I don't look at this picture and see much financial upside from nearby growth. My downside is now not just my prior non-economic concerns but also seeing the possibility that higher taxes could mean I can't afford to live in my home any longer.
One Georgist counter could be that we should have legal and regulatory system with a very strong presumption that people can build what they want on their own property. That ship has long since sailed in the U.S, however, based on current zoning and land use regulations. As other commenters have noted, those could be changed by political processes without changing our current tax system, and indeed there's some amount of variation across different parts of the U.S.
(Interestingly enough, I'd say that "a very strong presumption that people can build what they want on their own property" *was* a good summary of the legal and regulatory system in the 19th century U.S. that Henry George inhabited.)
Based on the above, it's at least highly plausible that the political realities of a Georgist LVT would result in a highly anti-growth bias across most of the U.S.
To be honest, Georgism sounds like a dystopia. As far as I can see there it works as follows. Firstly, the government either expropriates all land or buys the land from the current owners. Then the government acts as a landlord, with the caveat that there are no renter protections and the government squeezes the rent as high as it can go every year. If there is someone who will pay more, the government gives the land to them.
This sounds like the very worst behavior of evil landlords. I suppose you could try to ameliorate this by allowing renters to have some protections, but once you do that, you have just re-introduced land as property, as really, what is the difference between owning something for 100 years or forever.
You could hope the government was not completely heartless and sometimes gave people a break rather than thrown them out on the street, in which case all you are asking for is corruption.
All the benefits of Georgism come, as far as I can see, from two aspects. The first is the government taking all the land. If the government gets this for free, this is obviously a win for them. If they don't this is only a win if land continues to increase in value. The best estimate of the value of a piece of land is its current price, so I don't think this is necessarily a great bet.
The second aspect is the flexibility of land use it introduces. The right development will be done as someone will buy out the land and put it to better use. The problem is that we have an installed base of people who live there who don't want to be inconvenienced by the change. They are the people who stop developers from building. This flexibility if great for increasing the utility of land but you could get the same benefit by just allowing landowners the right to build whatever they wanted. If landowners chase profits which is a good initial model they will build exactly what maximizes profits, the same uses that Georgism would build.
Georgism seems based on the hope that land will rise in price forever, and is currently undervalued. If this is the case, why isn't land worth more? If secondly imagines a wild west level of development that happens nowhere outside Yellowstone (the TV show). No one can seriously imagine poor tenants being evicted every year because their building is on land that could be better used for some other purpose.
Is there another benefit to Georgism other than the government getting the upside to land appreciation (if it exists) and the added flexibility? I suppose one benefit is the feeling that landlords are being screwed. The problem is that this exchanges landlord with the government, who is probably just as bad. The dream is that landlords would continue to exist, between the government and the people, to be continually drained of money. The tenants would pay the same amount while the government would demand more, and Mr. Moneybags would take the hit. What happens is Mr. Moneybags is taken out of the equation and the tenant rents from the government? It sounds dystopian - every increasing rents. What happens is Mr. Moneybags is an LLC? It goes bankrupt and there is no one to shoulder the cost, and the tenants themselves renting from a bankruptcy court that can't sell the building as it is worth less than zero.
Some questions for Georgists?
1. Will land prices go up forever(faster than inflation)? If so, why are they not higher now?
2. The government owning all land seems the same as charging 100% land value rent. If the government does own all land, will they give tenants any rights beyond 1-year rental? If a restaurant needs 5 years to establish itself and make money, would the government consider committing to a fixed rent for 5 years? If 5 years, why not 10, 100, or 999 years leases as in London? These leases could be non-transferrable, but without restricting on sub-leases, they would still act as property. Will the government ban sub-leases?
3. Most people will expect reasonable tenant rights to continue to exist, like the right of a tenant to stay in their home. How will this work in a world where landlords can have their building seized by someone who pays more to turn it into a golf course? What happens to the tenants?
"Then the government acts as a landlord, with the caveat that there are no renter protections and the government squeezes the rent as high as it can go every year. If there is someone who will pay more, the government gives the land to them. This sounds like the very worst behavior of evil landlords."
I agree! It's exactly like the system we have now, except who the landlord is. This strikes me as a win though, and a big enough one to be in favour of Georgism: IMHO the government is a better landlord. You *want* a landlord who, committed to never selling their land, will ruthlessly lease it to the highest bidder, instead of sitting on it, not particularly maximising its productivity, merely hoping to sell it later for a profit.
And I would much prefer the rental income go to the government as general tax revenue (capable of replacing other taxes) instead of it going to essentially random people who either lucked into owning the land in the past, or who (perhaps skillfully!) speculated on land, neither of which acts contributed anything to society. I love capitalism when it works, but profits are useful only as incentives, and so the spoils must be earned by providing something valuable to the world. Just because land speculation might sometimes require skill, doesn't mean it's providing anything of value, so allowing people to profit from it does not serve a useful societal purpose.
Furthermore, in the current world you pay the landlord rent and you then pay taxes to the government on what you make. In Georgism, at the very least your pocket book is not being double-dipped!
>You *want* a landlord who, committed to never selling their land, will ruthlessly lease it to the highest bidder, instead of sitting on it, not particularly maximising its productivity, merely hoping to sell it later for a profit.
This sounds horrific, I am a capitalist but not that capitalist. Under our current system you lose potential earnings if you underutilize your land, under Georgism it seems like you get taxed based on the potential earnings a bureaucrat thinks you should be earning and then get evicted.
Do you think it's wrong for people to want to own their own land and homes?
Whether it's wrong isn't relevant to how I would want to make decisions about what should and shouldn't be the case. I don't think wants are wrong in and of themselves, but that doesn't mean it's good policy to indulge them. It's not wrong for me to want a million dollars, but the law should not allow me to steal it (not implying an analogy where owning land is "theft" or anything like that, just a simple example of understandable wants being understandably disallowed).
As I mentioned elsewhere in the thread, I would prefer (and am optimistic about) a market mechanism for determining the land value, rather than a bureaucratic one.
Businesses that use scarce resources without producing a profit go under. If they are propped up by a system that gives them a monopoly over a scarce resource (whether they paid for the monopoly rights back when it was less scarce or not), we would call this crony capitalism. It's unearned profit, it concentrates wealth, makes the distribution of that resource less efficient, and does not contribute to society.
People who own land are not evil, and I'm not on board with those in these threads who would propose simply taking the land from current owners - it should be bought from them at a fair market price, or the tax brought in gradually enough for it not to make a material difference to anyone who recently bought property.
They are simply acting in their interests right now. I'll be buying land in the not too distant future, because I want to have full rights over what I can do on that land. It's a great ideal, I don't want to be a slave to anyone.
But it makes no difference to me whether I pay rent on the land on an ongoing basis to the government, vs paying it up front to the seller (in practice still an ongoing payment to the bank that loaned me it). The only people that would make a difference to are property speculators, who are banking on the value of the land itself increasing.
I very much value the right to do what you like with your space, I just don't think you ought to be entitled to the capital gains. Whether or not you technically "own" the land or not isn't relevant to me, so long as you have those rights.
I'm sure there are versions of Georgism you could formulate where you do buy and sell land and actually "own" it with no ongoing tax that you can be evicted for not paying, but you pay a 100% capital gains tax when you sell it. That would be fine too. Would something like that be amenable to you?
We just want to take away the incentive to speculate on land prices, and the unearned and not-useful-to-society profits that are made by people who do this. It's a redistribution of wealth to the already wealthy, without any societal payoff to justify it.
Assessments aren't made up numbers. When done correctly, they're reflections of the demand for that piece of land.
They are rough estimates of the demand for that piece of land. "Done correctly" are not words to take lightly - we have extensive history of property value assessments, and we're fairly certain that no matter how people have tried, in all cases they're not really "done correctly" and have all kinds of obvious bias, some of it random, some of as intentionally skewed by policy, and some of it through corruption.
So in order to make the extraordinary claim that *this time* it would be "done correctly" it would require extraordinary evidence - and no, merely showing that it technically can be done correctly is far, far from being sufficient to assert that it's plausible to do it correctly in practice, given all the organizational and societal problems which all the current property assessment schemes have failed to completely overcome.
Each time there is an increase in property values, there are mass mailings from businesses offering to fight the assessments.
The whole thing feels fucking corrupt. Do the people who whine the loudest save money? I shouldn't even be asking these questions.
It needs fixed, but the urgency isn't critical because it's not my primary form of taxation. Under an LVT it would be absolutely critical.
I go back and forth on this, because I use/subscribe to a company who protests your taxes for you every year automatically.
On one hand, it seems I am wasting money (or energy if I was doing it myself) just for selfish benefit to make my slice of the budget pie a bit smaller.
On the other hand, we don't think hiring a criminal defense lawyer is selfish. The adversarial process produces the best outcome that we have developed so far. So if advocating/hiring someone to advocate for yourself isn't corrupt in criminal trials, or in civil trials, why is it corrupt to do so in these kind of administrative proceedings?
Well no, in the current system whenever I want to make an investment in some improvements and I'm afraid of the risk of a bad landlord, I can solve that risk by buying the land and tying the land to the buildings. If I'm unable to own the land and are restricted to renting, or in the case of LVT, being subject to large (rent-equal, unlike current property tax) payments which, crucially, may significantly increase for reasons outside of my control, then that is a major risk that may dissuade me from building that improvement.
"IMHO the government is a better landlord. You *want* a landlord who, committed to never selling their land, will ruthlessly lease it to the highest bidder, instead of sitting on it, not particularly maximising its productivity, merely hoping to sell it later for a profit."
The federal government currently "owns" 640 million acres -- 28% of the land in the United States, most of it in the west.And it has been sitting on that land, not particularly maximising its productivity, for a century.
The US government routinely rents western land to cattle grazers. It also permits natural resource extraction and establishes national parks for public use. What more do you think they could do to maximize productivity?
The US government rents western land to cattle grazers because raising cattle in those areas is an incredibly inefficient use of land and requires more land than the ranchers own for the damn things to survive. Much of the resource extraction is done at the expense of, not to the profit of, the state/public. What they could do to maximize productivity is open it for homesteading or auction it off.
"You *want* a landlord who, committed to never selling their land, will ruthlessly lease it to the highest bidder, instead of sitting on it, not particularly maximising its productivity, merely hoping to sell it later for a profit."
Well, I own my own home (because I inherited the family home after my parents died) and I'm not "sitting on it hoping to sell later for a profit", I'm living in it and will continue to do so until I die myself.
I can't turn it into a block of flats because I don't have that kind of money. Under Georgist system, if all zoning is abolished and high-density housing is practicable where I live, then I will be taxed based on "if you had a block of flats here and rented it out to fifty people" instead of the current property tax.
And the "rent to fifty people" is estimated on current market rates which are high because of housing scarcity, so I would be in the position of "we're taking your house and making more productive use of the land". And then where do I go to live? Try to rent a flat in the place where my home used to be? Try to find a cheap bedsit where I live in one room?
It is true that you and everyone else will be incentivized to build more housing on your land or to sell it to someone else. This should suppress the cost of housing (since supply has risen). You should still be able to afford the same sort of housing, though perhaps on another location.
Kinda sortof. If you put things in the worst possible light, then yes. But mostly think of prime real estate homes as the next gen "old castle". Nobody really lives in them anymore - partly because they're too expensive, and partly because it's better to convert them to something else.
In practice I'm betting LVT will be set at a laughably low level compared to the value of the land, so what's going to actually happen is:
- in most cases a somewhat higher property tax. Well within the domain of "raising taxes a bit" and far from paradigm change
- if your house happens to be prime real estate, you'll be able to keep it, but you'll noticeably pay for the privilege.
- in a very low minority of cases, you won't afford to pay the LVT, but things are set up so it'll only happen if the gain for society disproportionately higher than your loss. Which is what you described, except it will be a rare event, and if you tell the story from a YIMBY perspective it will sound a lot different.
Also what you're describing is mostly a transitional problem - the fact that you already live in your home. If enough time passes to change generations it'll be partly inheritance tax and partly "the times are changing". And no new homes will be set up in such places unless people really expect being able to pay for the privilege long term.
Also barring the transitional period, LVT is fair because it's taxing commons: your land is "good" due to the stuff other people built around it. It's not taxing (say) 70% of your land value. It's letting you have the other 30% for free.
Is it really true that land speculation provides no social value? If I anticipate that a plot of land near a city will soon be much more valuable when the city expands, so I buy it up and keep it vacant long enough to be incorporated into the metroplex with a high-level development, doesn't that provide value to that city relative to the counterfactural where somebody starts using it for low-intensity farming or as a dump or whatever, making it more difficult or more expensive for the city to develop it when the time comes?
"I agree! It's exactly like the system we have now, except who the landlord is. "
No it isn't. The system we have now includes landlords who compete with each other. If landlords raise the rent too high, renters will stop renting from them. The government doesn't compete with itself.
The system we have now also allows you to be your own landlord, which the new system doesn't.
I feel like Georgism is highly specific to landlords and renters, and doesn't want to think about people who own their own homes at all.
People who own their homes in areas with insane housing crises would have a higher tax bill under LVT - although cuts to other taxes could lead to a net gain https://www.geogebra.org/m/cDDWcAxj
California has a lot of single-family homes where land values indicate a need for much much more housing- people make millions off this discrepency, at the expense of those in poverty
I agree that people holding single family homes in busy urban areas while the value keeps appreciating is an issue. A couple of thoughts:
1) There are other ways to address that particular issue, including changing how zoning laws work (which Georgists seem to agree is important anyway), and reducing/removing the ability of locals to veto housing expansions. A person can even hold their single family home in this plan, but would have to deal with apartment buildings being built nearby.
2) Growing urban areas, where LVTs and Georgist thoughts make the most sense, are not all areas. If local cities want to implement an LVT in line with what we're talking about, that makes a lot more sense than a universal LVT that includes small towns and rural areas, or even smaller cities where urban growth and rents are both lower.
Note that people owning single family homes in busy urban areas is basically the only category of homeowner that will be significantly hurt by a transition to Georgism.
Take my case as an example where I've done the numbers. I live on the outskirts of a large town, with an adjacent cornfield. The immediate proximity of farmland (and the very similar plots that have sold in the last couple of years) allows me to have high confidence that the land value of my 5 acres is ~$25000. Assuming 8% capitalization, that's a $2000/year land rent.
My property with improvements is under assessed (at about $150k when I purchased it for about $250k last year), but my property taxes are still about $2200/year.
Note that I have a LOT of land compared to most homeowners, which will probably compensate for the higher land prices as you move into town. Vacant lots in town seem to go for 20-25k per acre, but single family home plots are usually much smaller than an acre, so their LVT would be lower than mine for a similar current property tax value.
Outside of single family homes in busy urban areas, the home really is the majority of the value, and isn't taxed under georgism. That's the difference between the government in georgism and a landlord; you only pay for the land rent, not the building rent. In cases of single family homes in the SF area, etc. it makes sense to incentivise them to sell and do something far more valuable with the land.
My main issue that they were already incentivized not to buy recently (by being charged an absurdly high price for the land) and implementing georgism is unfairly depriving them of what they just spent a bunch of money on. A fair transition is a major problem for georgism.
So basically, if the government decides to facilitate mass immigration, I have to sell up? I contributed to my area being desirable, through my work directly and through taxes paid which helped to develop physical and social infrastructure. But instead of being rewarded for that, I'm penalized.
Off the top of my head, a possibility would be to allow 10, 100 or 999-year leases but only if you pay the whole 10, 100 or 999 years' worth of rent up front.
So, not allowing them to people.
Yeah, in the 999-year case that would be the effect in practice, but in the 10-year or even 50-year case people could take a loan and/or use their savings.
But that's just the mortgage system we have now except you don't build permanent equity
short-term leases would be less valuable, (and thus less costly) as a result. Allowing you to invest elsewere (perhap in something that actually stimulates the economy).
The problem for that is that for land short-term leases limit making improvements, and we very much want to facilitate making improvements. In order to justify pouring in the money into building something, you would want to lease the land for the expected useful lifetime of that building, or at least for a long enough time for the building's rent to fully repay it's construction costs, so we're talking about multiple decade long leases - and, crucially, with a *fixed* price, not like an LVT that may triple after ten years.
If the time value of money is not unreasonably low, the difference between 30 and 100 and 999 years is small. At 5%, the first 14 years is half the value and 30 years is 75%. 100 years is within 0.5% of the forever value.
Taking land away from the speculative equity markets is the central feature of Georgism, yes, you'll have to use the stock market like all the poor people now.
This is not a good system, because its impossible to know what future rents might be right now.
Land reform/tenure systems are semi-Georgist, but as you get farther and farther down the road, the payment gets less and less detached from the actual value.
Is the rent discounted, so that you only pay the net present value of the future rents? In this case, with 100 year or 999-year leases, if they are transferable, you have created something indistinguishable from property. If you allow this, why introduce LVT in the first place? The value of a property is the net present value of its future rents, so land would be valued at its current price in this model.
No, you pay 100 times (or 999 times) the current yearly rent up front.
(I admit I haven't thought about possible consequences of this too much though.)
this is how hong kong tried it i believe, it has drawbacks but definitely achieved the 'density where it makes sense' promise of georgism
Good point, and apart from the "large and quick tax change is unfair", that's a big argument against georgism: when you reframe it as "replace private landlords by the gouvernement", you can see there is a problem: power concentration. Regardless how corrupt and evil private landlords are, they have very limited power and coordination. While the government is somewhat coordinated and already concentrate many powers... I was somewhat sympathetic to georgism before, with caveat of very progressive change and an instinctual reluctance to apply it on land used for main residence... After this reframe, i am now against it, as a new push for more societal control, collectivism 2.0. This trend is accelerating so much this 21st century it become ominous...
Also, if you accept that LVT means the state is the land owner, private actors are renter, it means you will build on rented land. This is something that already happen, but rarely, usually on state owned land and even even more rarely on privately owned land...But the usual situation is that the building and the land is owned by the same entity.
And for good reason: building on rented land expose to confiscation, by rent increase, because you can not move the building. So imho Georgism means you completely trust the entity that will rent you the land. Judging how building on rented land is uncommon now (in countries where foreigner can not buy land but build homes, or Emphyteusis usually 99y arrangements), most people do not trust the renter enough, even when it is a state.
Exactly, while "screw landlords" revenge fantasy is titillating (especially given that I will soon look for place to rent again) the solution as presented seems quite suspect to me.
At least admit that the plan is to take land from all current owners of land (which problem is self solving as it requires powerful people to not block something that will take large part of their wealth).
> buys the land from the current owners
Not feasible at any prices matching actual value.
How exactly does imposing an LVT count as "expropriating all land"? Like, nobody says that a property tax is "expropriating all houses."
The proposed tax is supposed to be such as too remove all value from the land itself, i.e. Be as high as the market would pay for the land. This is a rent, so the land loose all value and is rented from the state
Isn't the tax supposed to be set at 100% of land *rent*, not land *value?* As in, if the land is worth $10k and the cap rate is 10%, the LVT would be $1k?
Yes, but if the rent is rightly evaluated and fully taken by the state, how much do you think your land is still worth, how much you can sell it? Zero, of course...
Well, the idea is that an empty lot would be worth 0 but a building used productively would be worth more, since returns on capital investment aren't taxed.
I think vey few people propose a full 100% LVT though, if only because that makes you very vulnerable to inaccuracies in the evaluation.
The main profit of Georgism I see is to prevent anyone from getting money just by owning land without contributing something and expecially stop all speculation with land that drives prices and rents into dangerous bubbles.
Under Georgism you would still be the owner of the land so you decide what to do with your land and if your sell it or not.
Most of the problems you see, come from the idea to implement a land value tax (LVT) that is only based on the current value of the land ignoring how you actually use your land. With such an LVT the government wouldn't force you directly to do anything (except the usual legislation that is in place already), but if the value of land raises by local development (or just because your area gets famous) the tax would raise making it impossible to use the land the way you want and did before. But this force isn't the government arbitrary medling with your affairs, it is more like the forces of the markets.
I strongly object this kind of LVT exactly for this reason. But I think that an LVT wouldn't be the only way to implement the advantages of Georgism. See my other Post: https://astralcodexten.substack.com/p/does-georgism-work-part-3-can-unimproved/comment/3971821
Gentrification already exists. First the landlords raise the rents and the renters leave. Then the owner-occupiers realize they can have so much more someplace else if they sell, so they sell. Then the holdouts eventually have to sell because they can't afford it (but at least they get a nice payday).
Under this system, the renters are in the same situation. The holdouts are mostly the same. The only difference is the owner-occupiers and the holdouts don't get their payday (unless the use for their structure is markedly similar), but in exchange they got the house in the first place for cheaper and their other taxes have been much lower for years.
I know about gentrification. But I think it often it is not for the better, so I don't want a system that always enforces it.
Often a specific quarter is attractive mainly for their local social fabric and culture that often develop best when the land is not used most efficiently in economic terms. If now these people are forced out because of the attractiveness they built up together, this is not just, and the local culture will probably suffer.
If land values rise because some investors think they could run profitable Hotels there, not everyone should be forced to sell their property because of rising LVT.
I understand the need to have some pressure not to block really needed land, but there has to be a democratic process involved, not a pure automatism. Expecially not one that kicks in too often and too early.
I didn't say gentrification is for the better, but that it already exists. Many places have a 2% property tax today that, like it or not, increases when the neighbor's value increases. How is this any different? We have protections in place under the current system, we would likely have protections in place under a LVT as well.
The gentrification we see in Texas often isn't because a neighborhood is attractive for it's local social fabric. Areas normally gentrify the moment the value of not having an hour commute exceeds the risk of crime. There are some exceptions, but those are primarily because the local neighborhood fabric is actually the close proximity of enjoyable retail, not anything like a particularly vibrant HoA.
I'm not a Georgist. I hadn't even heard of it before a previous SSC article. But the current democratic process has both property tax and eminent domain. Where are you seeing places that have adopted a LVT and are having it displace communities too often and too early?
Of course the worst cases of gentrification are the ones you hear about the most, and the symptoms may be different here in Germany than in Texas.
As far as I know the main driver for the negative aspects of gentrification is not property tax but raising rents and prices. This could be different if you have a LVT as high as discussed here, that it effectively collects the whole land earnings of the best possible use of the land, which often seems to imply the most profitable use. If the LVT is coupled like this to the current market value your landlord has no choice but to increase your rent accordingly if he doesn't want to make a real loss. This couples the price to rent a apartment to the general (rising) value to land while the wages of most people will not increase.
I'm not a Georgist, but almost became one reading these articles here, so I'm just thinking of all consequences Georgist policies would have, or better how to shape them in detail not to worsen some of the problems we know about as a side effect.
See, this was something that surprised me when reading the article and the comments. I had thought that this would be a very high tax, but it isn't as high as I thought.
In the US property tax rates in states without an income tax are about 2%. These states tend to be considered the more "affordable" states compared to the income tax ones which usually also still have a (smaller) property tax. Not sure how accurate that is.
Something the author of the article said in the comments (and was borne out by some other related articles) was that if you were to correct the property value portions between land and improvements (as in, if a property is valued at 500k now, and allegedly it's 10k land and 490k improvements, and this were to be corrected so it is still worth 500k but more accurately say 270k land and 230k improvements, or whatever ratio is actually accurate for the area) then the LVT would be equivalent to a 5.5% tax on the appraised value of the land.
For many many many people in the US, a 5.5% tax on the land appraisal would be significantly lower than a 2% tax on the property appraisal. For most people their house/improvements alone are worth significantly more than the cost of buying an empty lot. For some people this is not true, but this also isn't vastly larger than the 2% property tax they face today.
I was a little worried about the possibility of this kind of policy forcing people to leave houses they'd lived in, but then I asked all of my friends that I could and found that almost none of them have any property that has been in their family more than a single generation (ie, not even any houses that had belonged to somebody's parents). So clearly this is already something that is occurring all the time under the current system and I'm no longer dissuaded by that possibility. (At least where I live, could be different in other places)
I still wish there was a market mechanism.
My landlord doesn't have to have had the property appraised when they decide what to set the rent. I mean they do get it appraised (or at least compare to similar properties in the area) to give them an idea, but it's not crucial that they get it right, and it's not the final say. It's self-correcting: if they set it too high they get no tenants, and if they set it too low they get a lot of applicants when it goes on the market so they know they could charge more. They aim to set the rent at whatever the market can bear. Should the government not do the same when deciding the tax rate for properties? Isn't that what correctly valuing the property would mean?
In the previous threads there was some discussion of how bad it would be if the government set the tax too high - in excess of 100% of the value. The badness that would result (people abandoning their properties or being unable to pay the tax) would presumably be visible to the government. And, as argued, it is bad for the government's income stream if this happens. So, like my landlord, their selfish interest ought to be in favour of setting the tax rate "correctly", i.e. at the rate the market is willing to pay, which is by definition its value.
I wonder if the government could essentially just charge whatever they like, like my landlord does. It would be *informed* by appraisals I'm sure, as a good initial guess, but then they'd use the feedback of the market - how long it takes a property on the market to sell etc - as feedback to adjust it. It would ultimately just be their call to set it, and you could complain, but their word would be final. Your complaint would actually just be advice to them that they might be shooting *themselves* in the foot. Which I hope they'd notice, but you might be able to give them some advanced warning.
If it is indeed in their selfish interests to get it right, then there's no need for the appraisals process to be sacrosanct, it would just be one factor, an initial guess to a feedback process. Like my landlord, they would just be trying to extract maximum income however they can.
I'm sure three seconds' thought raises issues with this. But I still want a market mechanism, even if the government is the only "seller", and it seems tantalisingly close to being possible given these arguments that over-appraising would actually hurt the government's income stream.
Actually William Vickrey, a Georgist, won a Nobel prize in economics for his auction system which he designed specifically for land valuation. Many Georgists propose using Vickrey auctions either to replace or to supplement regular assessment practices (double Vickrey auctions on separate bundles of rights when selling land + improvements). So there are certainly market mechanisms for price evaluation; Lars does not go into them here however because land value taxation would probably be implemented- at least at first- as simply a modification of the property tax system, which always uses assessments.
I'm not sure how that would help in Georgism specifically. Sure, it may be an improvement on getting good valuations from auctions, but I'm happy to presuppose that even non-optimal auctions are a pretty way of doing valuations. But in a Georgist society, the auction, Vickrey or not, would only give you information on the total value:
total value = land value + improvement value - tax obligation
You still have the problem that determining the left land side accurately does't tell you what the first term on the right is, without additional information. Unless this is something you're saying you can get at with "double Vickrey auctions on separate bundles of rights when selling land + improvements", but if so you'll need to elaborate, as I'm not following.
I'm not an expert on the auction field unfortunately, I have mostly dedicated myself to learning about assessment methods because they are what Georgists deal with on a practical level. But from what I understand, a double vickrey auction conducts parallel sales- one for the land with the improvements and one for the land without the improvements. You can subtract the difference to get the value of the improvements vs the value of the land. There is quite a bit more to it, which I am not remembering, but that is the gist of the method. If you join the GeoPraxis Discord server I can easily connect you with people who know much more.
There's a quite elegant mechanism called the Harberger tax, that occasionally pops up in discussion of LVT. Basically, everybody decides the public price of their land, and pay taxes based on that. The counterpart is that anybody can buy their property at the listed price, at anytime. Robin Hanson discusses it here: https://www.overcomingbias.com/2017/10/for-stability-rents.html
I'd be curious to know if anything like that was ever tried in practice. Not sure how well this could separate the value of land and that of improvements.
Harberger taxes work out to be equivalent in many ways to a situation where 'land' is owned by the commons but rented out for a fixed term to the highest bidder. Not sure if any actual land made of dirt is distributed in this way but some countries use it to allocate the airwaves to telecoms companies.
This is a fun thought exercise, but in practice no one wants to live this way. I don't want to wake up tomorrow to find out that someone bid me out of my house and I have to move. (And I don't mind paying 5% of my land value in perpetuity to the government under an LVT.)
I think the friction of having to move out is priced in (you would list your land at a price above market).
Even still, that could get really bad, really quickly. A better option is that the state assesses you land, and is obligated to pay you the full value if you decide to move. Leave the decision in the hands of the landowner.
How about this instead?: everyone is allowed to bid on the land, and the highest rejected bid is considered the value of the land.
That would probably work as well, although the state might want more frequent assessment.
I was thinking of a similar thing, where the state assesses and the owner assesses. Then if the state is higher, have an auction with the owner's assessment effectively being the reserve price. The owner can match other bids if they want to keep ahold of it, but if no one else bids over their assessment they keep it by default.
In this case you're no longer taxing land value; you're taxing (land value + unwillingness to move).
That's right. From a pragmatic point of view, I don't think it would be a bad thing (it pushes down the price of secondary/unoccupied residences).
Other than all the times where life events simultaneously decrease willingness to move and free time. Because God knows the first thing I want to think about when I have a sick newborn or need cancer treatment is "Gee, better raise my house value by 10% so I don't get my house sold out from under me in the middle of chemotherapy!"
My land value has doubled over the last few years after 10 years of being rather flat. If I had been busy with life[1], someone would have displaced me last year.
If my taxes go up by 2x, well, okay, I'd rather that not happen, but at least that isn't displacing me, and I can at least have hundreds of thousands of dollars I can borrow against to compensate me.
[1] This happens when you get older and get married and have kids.
This would not allow separation of land from improvements. I'm with Edward that the bigger issue is that you could suddenly find yourself outbid, unless you intentionally overpay your taxes to scare off investors. You would also have tons of people intentionally underpaying their taxes by lowering their own value - with two concurrent problems of lower tax revenue and very upset residents who may suddenly find themselves without a home after years of underpaying. I can hardly imagine a worse system for the majority of people just trying to live their lives.
The problem with abandoning is that land is inherently tied with existing buildings, and there is really no fair market for rent in this case as you can't take your building or other improvements and go away to a different landlord, so in the absence of regulation, the land owner can exploitatively capture most the rent value of the building as well (since the only options of the building owner are to pay up or tear down their building), so it's commonly limited by regulation to some proportion of the land value - and in Georgism it would probably be equal to LVT.
So if you have a building and a land, and the LVT is too high for some reason, abandoning the land does not help you in any way as the government or any other landlord would just be charging you the LVT as the rent for the land under your building.
There are a lot of ways to abandon property and avoid an LVT that is no longer worth the trouble. Depleted oil wells are an excellent example.
https://www.bloomberg.com/opinion/articles/2021-10-14/it-pays-to-not-pay-your-debts
The original poster capture the issue of splitting building (improvements) from land: you can not move the building. There is no way for the building owner to magically shift it from one parcel to another, while a current rentrer constantly move from one rented place to another (knowing you may have to move is one big reason to rent, even while it cost more. How would the builder move its asset if LVT get too high? He can't... And he can not even sell it at a fair price, because if he can not bear the LVT, the way to bear it probably involve a new use for the land, so existing infrastructure are a liability, not an asset...
In fact, looking at the rent market, Georgism would be a huge boost for mobile home and state owned home, with private building owner being a super minority. Which is a possibility and a big step into the rent only future many big economic actors want...
> I wonder if the government could essentially just charge whatever they like, like my landlord does.
Landlords can set individual prices for individual tenants, giving a break to one or raising rent on another.
That's legally okay for a landlord (although I raised an issue with this in the previous thread).
The problem would be that they could squeeze individual parties. Bills of attainder suck. Can the government charge a specific person more because they don't like them and give a discount to their buddy?
I’m quite confident they could and would give discounts to favored groups. This happened already. It sometimes seems that every election cycle in Virginia there is a referendum on giving some tax break to veterans and their families, for example.
I would prefer an LVT to a income tax, but it's turned out to be surprisingly hard for the government to say that certain occupations (at the same pay rate) have to pay less or more income tax.
Farmers, I guess, which sucks, but that's as far as it's gone.
https://publics20.classes.ryansafner.com/slides/4.5-slides#17
'COST' taxes would maybe be what you're looking for. the idea is to exploit auction mechanisms to properly appraise land values.
Step 1: Land owner declares value of the land on their property, government taxes that land accordingly
Oh no, what if they lie!
Step 2: If someone wants to buy the land at the declared value, they can
We'd probably add some exceptions or delays, reducing efficiency up front but saving us from errors long term.
The scope of the 'exceptions' necessary is what would make COST taxes either an improvement or waste compared to traditional assessment.
As someone brought up, Vickrey proved this works for 'economic land' with auction theory on access to natural resources like spectrum and drilling rights. It could work with other economic land as well, but expanding that experiment would take some care. I think it would be worthwhile to try.
COST taxes are a possibility in the current environment but are fundamentally incompatible with Georgism where the market value of land to a speculative/investing buyer - the future net cash flows from rent - is zero, as it's all captured by the LVT.
Hm, so this series didn't respond at all to Bryan Caplan's argument against the LVT (https://www.econlib.org/archives/2012/02/a_search-theore.html), that it disincentivizes looking for new *uses* for existing land? (E.g., looking for oil.) Any thoughts on that?
Oops, that first sentence shouldn't be a question. Damned lack of an edit buton.
Folvary responds here: https://link.springer.com/article/10.1007%2Fs11138-013-0243-7
There's also a brief response by Noah Smith in "A misguided attack on Land Value Taxes" http://noahpinionblog.blogspot.com/2015/03/a-misguided-attack-on-land-value-taxes.html
Terry Dwyer also covers this more extensively in his "Taxation: The Lost History" in various sections, such as "Rent As Reward for Risk" - https://www.jstor.org/stable/43817496?seq=34
and "Discovery of Natural Resources - https://www.jstor.org/stable/43817496?seq=187
After logging in to the site (gmail account works) you can go to these links to jump to that specific section.
Interesting, thanks! Will have to take a look.
Hm, OK, so taking a quick look at some of these, it seems like the probable answer that some of these have converged on is "yes, there is something of a problem here; but the appropriate answer isn't to abandon LVT, but rather to grant discoverers of new uses patent-like temporary reprieves from it". Interesting. I'm not very clear on how that would be implemented, but it seems likely it can be in some way. Thanks!
Yup it's a fair critique, but it seems like we can come up with a better solution than "Give the discoverer all land rents forever and ever, Amen"
It seems pretty silly to assert that because Christopher Columbus discovered new land uses in the Americas he and his descendants should be able to extract all the rents from it in perpetuity.
Yes sorry Caplans argument was addressed in the comments earlier so I didn’t want to ninja edit an already finished article on a short deadline. As an additional point, look up Norway’s very arguably Georgist oil exploration system set up by Iraqi Norwegian immigrant Farouk Al Qasim. They massively subsidize *exploration* but also massively tax *extraction* with a hefty severance tax, an LVT for natural resources that can be depleted. Norway’s system works incredibly well, incentivizes incredible innovation and research and development as well as efficiency, and the bulk of the natural resource wealth itself, the people’s oil, goes to the people.
I was looking for this, but I couldn’t remember who wrote it, thanks.
I think the problem Caplan and Gochenour bring up can be solved by reversing who sets the price of land and who decides to sell. If the state sets the assessment but then must sell at that price if you wish, the issue goes away.
(Admittedly, it does raise a different issue of getting your crony to over estimate the price of your land and have the state buy it, but perhaps that could be done by having the state buy it only on contingency of reselling it immediately or something.)
I did force myself read these three essays, after being shamed about being driven off by the applause lights.
And while I did, two things kept blaring in my head as I read the essays, and more more while I read the comments: 1) Goodhart's Law is as unyielding as thermodynamics and harder to work around, 2) Public Choice Theory is true, and 3) it was enragingly difficult to read the comments because as soon as someone started talking reasonably and intelligently about transition fairness, someone else snarked moral equivalence between people who own their own houses and slaveowners. I have only so much spare assumption of goodwill, and this exhausted ALL of it. Marxbro was easier to swallow. And I bet someone could do an analysis on the comments, and accurately determine who owns their house, and who pays rent.
Me, I will sit back on my 9 acres of forest with no neighbor sightlines, my trees slowly growing back after being clearcut three times in the past 150 years, and wish nothing but malice on this idea.
Goodhart- yes, that Goodhart- co-wrote a paper with Tideman advocating land value taxation (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3960235), so apparently he himself does not see his law as an issue. As far as transitions and compensation goes there is certainly a reasonable case to be made. It is not reasonable to punish people who have simply done what the system incentivized them to do, and I have no interest in doing so- all I want to do is change the system, so that in the future it can run on a better, and more just, basis.
The abstract seems to suggest a 5.55% land value tax. I'm assuming Goodhart would be worried about his law if the tax was 85% or more.
You are (understandably) confusing land value with land rents, because Georgists seriously need to find a better way to separate these two with percentages, similarly to confusion over "percent" versus "percentage points".
So when we talk about 85%/100% LVT we're talking about that amount of tax *on annual land rents*. So in an area where the cap rate is 5%, then an annual 5% tax on the full market value of my land, *is* a "100% LVT".
In an area with, say, a 6.53% cap rate for my kind of land, a 5.55% annual tax on its full market value would be equivalent to an "85% LVT".
Seriously man -- my property value just about doubled for no particular reason (well probably mostly COVID actually) over the past two years -- 5-6% of it would be more than my total income some years.
Do you really think that the current situation would have been improved by half of the people in the country losing their homes and having to move due to taxes?
Even assuming that Georgism could somehow work in a well-behaved steady state economy, that does not seem to be the timeline we're in -- I feel like you need to think a little harder about the resilience of this system in times when things don't go so smoothly.
> Do you really think that the current situation would have been improved by half of the people in the country losing their homes and having to move due to taxes?
No I do not want to kick half the country out of their homes overnight. The transitional issue is a big thing to talk about and the subject of future writing.
In this comment I am explaining merely that we are not proposing to tax literally 85/100% of the value of one's land every year, as some seem to believe.
The immediate policy proposal I would push for is to take existing property taxes, raise the exact same amount of money, but from land and not buildings, and don't change the overall rate of tax. What comes later should come gradually and carefully and certainly not overnight.
I'm not talking about the transitional issue though -- it doesn't seem like this would have unfolded differently if we'd already somehow gotten to a nice steady state Georgian system.
Demand for land has suddenly jumped in many areas, resulting in the value of the land dramatically increasing. Some (rich) people have the money to pay for it -- I guess they still would under Georgism, so while "half" is an exaggeration I guess, it would still be a lot of middle class people losing their homes to rich people in this kind of event.
That doesn't seem like an acceptable failure state to me.
Broadly, life at the margin is *always* gonna feel lousy; the gist of the georgist paradigm is that we should do more to strike at the juicy center, and thus relieve the desperation experienced by so many
I'm not at the margin though -- I'm very comfortable and generally love my life. Why would I want a system that (literally!) marginalizes me?
If your land value doubled without being more productive at the same time as masses of cheap credit flooded the system I think that's some decent evidence that the price was driven up by speculators. A LVT would make land a much worse speculative asset and so your land value might not have gone up at all.
What evidence do you have that this has anything to do with speculators? Lots of people in my area have chosen to sell their houses, and the buyers move right in -- they don't appear to be driven by speculation in any meaningful way (and are nice people).
I'd go so far as to say that if they are speculating they are pretty dumb, as this seems likely to be at least a local peak (or plateau at best) in prices.
It did become more productive at the same time - the growth of the employment opportunities around it made it much more attractive for housing highly-paid workers, that's pretty much the definition of "productivity" for housing land.
In economic terms, housing a $300k-earning Silicon Valley developer is ten times more productive than housing $30k-earning janitor, so Georgian "most productive uses of land" means as much gentrification as possible, removing the current "stickiness" of housing where poor people can afford to stay in neighbourhoods even if there is demand for richer people to live in; a proper LVT will make it economically prohibitive for them to stay - which may be considered good or evil depending on your political opinion.
Well one of two things is happening in your area. Either this rise is driven largely by the speculative advance of rents, in which case one can’t actually currently extract rent commensurate with the increased price, or it’s driven by a true change in the underlying land value in which case rents will increase exactly in line with land value.
In the first instance a LVT would prevent an abrupt rise in speculative rent as there would be no anticipation of profiting off of future rent increases. In the second situation it seems that you are willing to ignore the plight of current tenants who will be evicted if they can’t pay the increased rental value to make current landlords even wealthier.
Under either a LVT system, or our current one people are going to be displaced by a rapid doubling of land values. The only difference is who those people are, and whether the added value is collected by society as a whole or a few select individuals.
I guess it's the second thing (as I've said below the people buying up neighbouring land don't seem to be speculating, they just have a lot of money and want to live in a nice place), but in this case the "underlying land value" is being driven up by increased demand; nothing has changed about the land or it's productivity.
Rents have indeed increased, although not proportionately as many landlords have owned the land for a long time and value good tenants more than squeezing out maximum profit -- this doesn't currently matter to me *because I am not renting*; anyways, in a Georgist system it seems like the situation would be strictly worse for tenants, as landlords would be forced to immediately raise rents in lockstep with property values -- resulting in tenants also being faced with unaffordable increases.
>Under either a LVT system, or our current one people are going to be displaced by a rapid doubling of land values. The only difference is who those people are, and whether the added value is collected by society as a whole or a few select individuals.
Well the people being displaced in this case would be "everybody who lives within ~50 miles of me and is not already rich enough to afford a near-doubling of their housing costs." We would all have to move to some concrete pods in the nearest big city I guess; "who, whom" is not a convincing counterargument for very many people facing this situation.
“The only difference is who those people are, and whether the added value is collected by society as a whole or a few select individuals”
If that’s the main concern, why not levy the tax when the value of the land is realized as income (whether at the point of sale or as recurring rent)?
If you couldn't afford the LVT on your land it means that you aren't making efficient use of the land and thus it would lead to more efficiency if you were forced to sell
The people who are buying land around me are not using it any differently than I am -- they just have more money.
So a rich person living in a house counts as "more efficient use of land" than a poorer person living in that house?
Thank you for clarifying.
They definitely need to find a way to talk about the differences because I am still confused. The cap rate is what is nagging at me, because you are going to have to revise that over time, otherwise the valuations are going to be out of sync with changes (e.g. new people moved in, there was a new housing development, new school needed to be built, roads were bypassed, etc.)
The land rent versus land value seems a bit circular as well; the value of the land depends on location (city versus rural) and what can be done with it (forestry, housing, industry) and thus that sets the rent that can be extracted from it, but then we're using the rent that can be charged to set the value of the land. That is a bit like saying "the rent for the skyscraper next door is $1,000,000 so the value of your land with one family home on it is also $1,000,000 in potential rent, pay up!" and I'm going "no, I can't afford that, I'm not getting $1,000,000 in rent!"
> the rent for the skyscraper next door is $1,000,000 so the value of your land with one family home on it is also $1,000,000 in potential rent, pay up!" and I'm going "no, I can't afford that, I'm not getting $1,000,000 in rent!"
Then you must get a higher-paying job, or move somewhere cheaper. Society as a whole benefits.
(living as the only tenant of such a desirable piece of land is a lavish luxury. it denies hundreds of others the right to live there at the market rate. why should you be entitled to such wealth? you did not create it. nor did you purchase it: the land was cheap when you purchased it, because the wealth had not been created yet.)
The slave owner comparison doesn't ring true now, but it's baked into the context of George's work. After the Civil War the slave owners became landowners, and the lot of the laborer was scarcely improved for a long time in many parts of the country.
The comparison is somewhat alarming to our eard after a century of regulations easing this tension, but at the heart it is true that land ownership ultimately is derived from violence.
Land value tax is not a land acreage tax. Your 9 acres of forest would probably get a tax cut :)
Well, no. Slave-owners were almost definitionally land owners. There were some who rented out slaves, but as I understand the demographics, the vast majority of enslaved people worked either in the homes or fields of their owners. And I'm going to resist the urge to derail into a discussion of the massive difference between being someone else's property and not being someone else's property, but it's more than a 'scarce improvement'.
The condition *was* scarcely improved for "a long time" for former slaves as reconstruction failed. 50 acres and a mule never came. But yeah we don't need to derail - i agree that the chattel slavery is worse than sharecropping (although Henry George was more skeptical in some respects!)
My acreage, and that of my neighbors, especially the large garden 503c3 literally next door, are here because we are carefully manipulating local and regional politics to prevent density and development.
that's bad actually, and the sort of behaviour that should be punished.
the land ought to be put toward its most productive use, but that doesn't necessarily mean density and development. With the proper taxes and subsidies in place, forests and nature preserves can be the most productive use of some land.
So, where I was mentioning "running out of goodwill"? This is why, this is it.
* The Georgists make an assertion about their idea,
* then then someone says "but what about (protecting local neighborhood character, green space preservation, dislocation, Carl Fredrickson, parkland, reforestation, why build at all, etc)",
* then a Georgist responds "thats bad, and doing the sorts of things you are doing should be punished",
* then another says "wellactually, we can add doing that thing to do that good thing, as a epicycle to the foundation of Georgism, after making everyone spend political and finantial capital to relitigate it all over again, but thats ok, and it's still Georgism".
Right....
Or, from another framing:
I say "we are carefully manipulating local and regional politics to prevent density and development" and I'm told I'm bad. Someone else says "we can use the political process to protect greenspace and quality of life", and they are told that is a good use of politics. I don't see the difference.
I don't know if that's Georgism or just, like, the nature of discussions on the internet. Which, yes, requires a very large supply of goodwilll. I'm not a Georgist, so please don't let your frustrations at me deplete your goodwill toward them.
I am a homeowner for the record!
> Me, I will sit back on my 9 acres of forest with no neighbor sightlines, my trees slowly growing back after being clearcut three times in the past 150 years, and wish nothing but malice on this idea.
If they are your trees and you live in a non-urban area, as you surely do given you have 9 acres of forest, then you are probably going to get a tax cut on your current property taxes because your land isn't particularly valuable. So by all means keep the trees.
Currently we are clear cutting trees left and right to make room for more suburban development as cities sprawl out further and further because current land policy incentivizes this. Policies that encourage greater density *PRESERVE* the wilderness for people exactly like yourself.
And if you want to support a tax on the permanent degradation of land value (such as clear cutting an old growth forest) I propose you look up Severance Taxes, which are another policy Georgists support.
At least until it becomes the next Jackson Hole and you get chased out, or the timber eventually becomes part of the value of the land and you can't afford to keep it...
Though to be fair a number of the epistles added to resolve obvious issues, such as severance taxes, do seem independently like good ideas, regardless of my distaste for the LVT.
Epicycles* darn it.
All the more reason to support policies that support densification and limit sprawl so the city doesn't splay out in all direction swallowing up wilderness?
My "land value", not "improvement value", will rise over time, because me and my all my neighbors and the entire region, as a matter of decision and policy, are encouraging as many trees as possible to grow back, and stay grown back.
Similarly, myself and many of my neighbors are actively engaging in medium and long term projects to remediate and repair soil drainage and soil fertility damage. (Soil is not free. You have to *grow* it, like any other agricultural good.)
If Georgists are going to come up with a way to start calling standing trees and soil "improvements" instead of "land value", well, I've not seen it clearly articulated in these essays. And this will be one of the myiad ways your beautiful theories will break in the forges of actual politics.
If you want to advocate for nature preserves there are many Georgists, myself included, who would gladly join hands with you on this project. I would be happy to write a "Does Georgism mean we should pave the earth" follow up (to which my answer is no) if you like.
The question isn't "does it mean we should pave the Earth", the question is "does it make it financially harmful to noy pave the Earth".
Sure. That's exactly what I meant.
I'd read it.
Cool, thanks.
Lars's first (then anonymous) book review discusses this a fair bit.
Improvements to land do not have to be structures; trees and improved soil are considered improvements, not land, in Georgist theory.
If forested land is cheap, why wouldn't loggers buy it all to clear cut it? If land is expensive, then we're back to the same problem. I know you've talked about additional rules (severance tax, etc.) to remediate the problem, but I am tending to agree with the others that are calling that kind of solution an epicycle, with all the related negativity that entails. If the theory needs a few dozen non-intuitive solutions to fix it, perhaps it's not a great theory.
I think calling it an epicycle comes from a misapprehension that Georgism = "LVT is literally the entire theory" and not "Georgism is a philosophy that believes that hard work and investment should be rewarded, but passively collecting income from the mere ownership of uncreated pre-existing resources should be taxed and distributed among the people." It's the latter from which all policy prescriptions, including both LVT and severance tax (the latter is literally LVT, but applied to depletable rather than non-depletable resources).
> If forested land is cheap, why wouldn't loggers buy it all to clear cut it?
Forested land is cheap right now! And it IS being clear cut! A lot! The argument being made is that if it was more expensive to hold onto it, the profit motive to clear cut a whole bunch of acres of it out in the wilderness goes down, not up, especially because you must additionally pay transportation costs to bring it to market which scale with distance from population centers. While land is cheap and free to hold, this wasteful activity remains profitable. (Remember, it's urban land that is the bulk of all land value).
So here's the basic argument, severance taxes aside for a moment. Investors optimize for maximum return on their money. If land/resources are cheap to hold, it's always a better return on your investment to just *GO GRAB MORE* land/resources than it is to make the best with what you already have. Under the status quo, the incentives are misaligned: "why care if I denude a site forever? There's another set of trees over there to cut down next. The long term costs are somebody's else's problem."
We can fix this if land/resources are expensive to hold and the amount it costs to hold is proportional to what you could expect to earn from not investing in making that property more *continuously* productive.
This is because NOW you will get the best return on your money not by going further and further out and clear cutting as much virgin material as you can (as is currently more or less the incentive), but by carefully cultivating whatever you already have, increasing its fertility, increasing its yield, and ideally increasing its long term value.
I will note that increasing amounts of America's farm land under the status quo system is in the hands of giant agglomerated agribusinesses that are behaving in exactly the opposite way -- optimizing for short term gains with low capital investment, with little investment in improving the long term yields of their croplands, massively relying on cheap fertilizers and petroleum inputs and blanket pesticides with heavy externalized costs, eroding topsoil and all that bad stuff, all because they DON'T want to invest more capital per acre, and they CERTAINLY don't want to invest more labor per acre. The trick is to get them to invest more capital and more labor per acre by taxing away the free gain they get just for excluding others from using a bare patch of dirt.
This is where the question of short versus long term exploitation of the land comes in.
Okay, so if you buy all that, then we get to the question of incentivizing proper stewardship. Assuming you're with me so far, great, now you're forced to make the best use of the resource nodes you already have rather than just lazily grabbing more, eating the tasty middle, and throwing the crust away. But does this mean you're going to strip mine the ever loving hell out of it and totally permanently destroy that value forever?
If there's a chance a form of exploitation can damage the long term value of society's land and resources, then that is bad for society and we should prevent that. Severance tax fixes this by making it so there's not a lot of profit in just extracting resources, and making sure society as a whole benefits from that resource extraction if and when it does happen. This is where some bring in "but we do want to exploit some resources, and Bryan Caplan's article points out why this scheme discourages them!" To which I bring up the case of the very Georgist -- and extremely successful -- Norwegian Oil exploration system that threads the needle about as well as I've ever seen. In short, they directly incentivize exploration and innovation, and massively tax passive extraction, among a few other policies.
This brings us naturally to the critique of "epicycles."
You said:
"If the theory needs a few dozen non-intuitive solutions to fix it, perhaps it's not a great theory."
Sorry to be pedantic, but I absolutely don't see where we've added a "few dozen" non-intuitive solutions. That suggests 24+ non-intuitive solutions, and that's nowhere near what I've proposed here. Perhaps you were speaking figuratively and meant more like 5 or 6.
LVT and Severance tax on depletion, as I have discussed here, are two solutions.
If we add Norway's direct incentivization of exploration/discovery of oil resources, that's three solutions.
ALL of those are intuitive (at least to me), and more importantly *naturally flow* from the same base principles -- that we should reward hard work and innovation and investment, and we should punitively tax passive extraction and collection of income that derives simply from excluding others from the natural bounties provided by pre-existing nature, which no human hand created or can create.
That said, I totally get it if this is unintuitive to you and it just doesn't make sense or you frankly think it's all a bunch of made up nonsense.
My point is just to make it as clear as possible what I am actually in fact saying.
As a final point -- if I grant that there is indeed a non-intuitive epicycle or three here, I wonder if this is an isolated demand for rigor. You could help me by telling me what policies you support, what aims are they meant to achieve, and do you believe they have a greater or fewer number of non-intuitive epicycles assisting them?
I'm sorry if I came across as snarky. I do appreciate all of the effort you have put into researching this. My remark about epicycles is not only a response to you, but many Georgists over the last week who have responded to some pretty significant concerns with adding layers on. That's not necessarily a bad thing, but the simplicity of "build a Georgist system and the incentives will fix X, Y, and Z automatically" isn't the reality.
I'm going to cut back on my posting on this subject, but I'll just say that you've convinced me that land taxes are better than property taxes that also include buildings. I'm not sold on Georgism, but I'm at least open to some parts of it.
Hey, thank YOU for putting up with me. I know I come on a leeeetle strong. I really don't mind people kicking the tires, in fact that's exactly what I came here for. If I'm wrong I wanna know about it now!
Do you have a mortgage, and if so are you okay with continuing to pay the bank for the same land which you will now be paying government for? It seems to me that if the government is going to claim all land through an 85% LVT, part of this must involve making sure that the loss falls proportionately on homeowners and banks.
So in my case my mortgage is currently 50% of the total value of my property, so the bank and I should lose the same amount. Based on some earlier numbers land is 70% of the total value, so if my property value falls to 30% of the current value, the mortgage should also be reduced to 30% of it's current value. To not do this means homeowners will be paying twice for the same land, as we will have to continue paying the bank for the land we purchased but now belongs to the government (i.e. the "income" belongs to the government), and simultaneously start paying the government for the full "income" of that same land, despite the bank owning half of it.
Splitting the loss this way will prevent most homeowners from being forced into bankruptcy, as they will now be paying LVT instead of mortgage rather than on top of mortgage payments. It will of course be very bad for banks, but no worse than it is for homeowners. To not do this type of split will still be bad for banks as the wave of foreclosures on bankrupt homeowners will be devastating for the banks as well, as the loss of regular payments will be difficult to make up through sales of foreclosed properties when most of the population who would have been interested in buying is recently bankrupt.
What, if anything, are your actual empirical objections to the factual claims made? As far as I can see you are just responding based on tone, which isn't especially helpful.
I don't think he's responding based on tone, I think he's responding based upon his perception that this will be bad for him personally. And he very well might be right about that. Even if Georgism would be a huge benefit to the country as a whole it's still going to have winners and lovers line any other major policy change. We do ourselves a disservice by pretending otherwise. Sometimes the right answer is "yes this would be bad for your particular situation but the overall benefits outweigh that, tough luck"
My analysis of Georgists' tone is helpful: Y'all are terrible at marketing your religion / one weird trick.
Which honestly, I consider to be a good thing. I will go ponder that.
"repeal of real estate non-disclosure laws"
Sounds like yet another tool for deplatforming, and for sending a howling mob of paid lumpenpoles to riot as someone's home. I'd prefer real estate non-disclosure laws to be tightened up, instead.
But then, I would guess that Georgists are also fans of the recent proposal that every bank be required to send your entire checking and savings and loan account transaction history to the IRS every year. "For transparency" from "tax cheats".
Georgists are fans of eliminating income taxes lol
wut
As Jack said, Georgists advocate eliminating income taxes.
> But then, I would guess that Georgists are also fans of the recent proposal that every bank be required to send your entire checking and savings and loan account transaction history to the IRS every year. "For transparency" from "tax cheats".
Actually we are completely against this and want to eliminate income taxes.
> Sounds like yet another tool for deplatforming
Huh? What do price records have to do with deplatforming?
> required to send your entire checking and savings and loan account transaction history to the IRS
I've had many issues with the Georgists but the advantage of taxing land is that land records are public and have to be public and are already public. ("Who owns this land?" must be answerable for every acre in the country.) And no one needs to know or care whether you've built a mansion out of gold or a shotgun shack: LVT doesn't care about the buildings.
"Who owns this spot of land right here" does needs answering for each parcel. That's what the county recorders office is for.
"What are all the parcels owned by John Smith, and how much did he pay for each of them?" does not need answering by any rando, least of all by "researchers", or by any of John Smith's neighbors, or by anyone who gets annoyed by something that John Smith posts to zuckbook.
All that is necessary for researchers is records of the latest market selling prices of these properties. Who owns them is not necessary to know.
Further, to levy a tax all that is necessary is to kindly ask that whoever owns this land step forward and pay the tax once a year. If you insist on a privacy preserving way to do this I'm sure one could be worked out.
You may be surprised to hear that most states in the union already have open real estate records for anyone to look at, do you see the negative effects you are predicting in those states? Are any doxxings the result of public real estate records? Or are they the result of things like phone books and other records, which make it trivial to find the addresses of people in all 50 states?
I know this is not constructive, but after reading through all of these threads, your name stands out as constantly posting the most idiotic bullshit. Any single one of your posts chosen at random is dumber than every other dumb post combined. Are you mentally retarded?
delete this brother just say it to a friend irl if u need to complain like this no need to post it online
I think there is an interesting question that goes unmentioned in this series, which is, what is LVT today?
We can tax every component of national income: labor income, income from capital (dividends and interest), and land rents (implicit or explicit). Here in California, labor is subject to a 50%+ marginal tax rate (state and federal), although your average rate is probably closer to 30% even if you have an above average income. Taxes on capital income (dividends, interest, etc) is maybe in the same vicinity, it’s trickier because you have two layers in many cases.
Ok, what is the effective tax rate on income from land? We care most about land in the really expensive urban areas, the red dots on the first map. California is a good place to look - although note that the high value parts of New York are similar.
I would submit to you that a high estimate of the current LVT in California is 0%. If you live in your property, no matter how palatial, you are exempt from tax on (imputed) income from that property - that is, the rent you saved. (You might be subject to some tax if you are a corporation but you have depreciation allowances and 1031 exchanges and other exemptions so it’s not so terrible even then.)
You are responsible for property tax, but because of Prop 13, that is effectively 0 for a large percentage of homeowners, because it is pegged to the original price from decades ago. (You can verify this by clicking around on Zillow - it’s all public info.) Even if you bought your property more recently, it is not terribly high. So 0% + 0% = 0% (granted we are rounding).
But that’s not all. If you own urban land, you get tons of public subsidies that are not readily apparent. For example, the mortgage interest deduction allows homebuyers to pay more for a house than they otherwise could have - and economic theory dictates that this government money just ends up in the pockets of landowners, since supply is fixed and so homebuyers just ending up using the money to bid more for the properties available.
More importantly, landowners today control how much housing can get built - they can veto their future competition, new construction. If you own a burger joint and say that you would like power over how many other burger joints get built in the city, you will get laughed out of the room. That would be a huge public subsidy to you, because of course you will say that zero other burger joints can ever get built so you can gouge the hell out of anyone who wants a burger. The public subsidy goes directly from the diner to you in the form of inflated prices, without ever passing through the government, but it is clear it is a public subsidy - the government is making a special allowance for you to steal extra resources from society.
I hardly need to point out that big city local governments are controlled by wealthy property owners who (surprise surprise) determine that the optimal amount of future housing construction is as close to zero as possible. (I realize development restrictions are bad for some subset of landowners with underdeveloped properties, but I think you can see that development restrictions are extremely good for landowners *as a whole*. That’s what you see with Rognlie’s chart that shows housing rents as a % of national income going from 3% - 10% as development restrictions came into place.)
How much are these subsidies worth? Again, very rough estimate, if Rognlie thinks that rents doubled as a % of national income, can we say that conservatively, government policy has doubled rents going from society to landowners? Surely in California it must be true. So maybe LVT is -100% on the lowish side? (Keep in mind these future subsidies are capitalized into the current price of land the same way future taxes would be if they existed - so the current observed price of land is really present value of land rents + present value of land subsidies.)
The marginal tax on labor is 50%, and the marginal tax on land is maybe -100%. The question I have is that as a democratic society, how in the actual f**k did we get here? Landowners? Who don’t do anything? They’re not building electric car companies or anything, they just bought a piece of paper.
What's crazy to me is that the discussion so far seems to imply we are considering going from like 45% to 85%, not from -100% to 85%.
Yet people just kind of accept what they’re told by landowners? “Oh, local control over development is great, there’s no conflict of interest.” “You know what causes high rent? Developers. Yes, just as surely as wet streets cause rain.” “Oh look, we’re building 5 units of affordable housing and preserving valet parking, we’re doing everything we can.”
I actually kind of buy everything in this series. We will be able to calculate land value (if we want to), LVT generally won’t get passed to renters, land is valuable (although be mindful that the current observed value includes future subsidies vs. the underlying land). But to me it’s much more interesting to understand how we got to a place in our democracy where we are still funneling so much public money to wealthy landowners, all the while enduring a housing crisis they caused by preventing housing construction.
(And full disclosure, from time to time on my linked blog I discuss things like this, but this is the general jist of it.)
“If you own a burger joint and say that you would like power over how many other burger joints get built in the city, you will get laughed out of the room”
Certificate of Need laws be like, “Hold my beer”
There are definitely examples of similar arrangements today, and there used to be more, especially before deregulation in the 1970s - like airlines needed route certificates to fly specific routes, and they would never issue new ones, and airlines made a lot of money and flying was for the very wealthy. Modern examples include liquor licenses, taxi medallions (until recently), sure, hospitals. But I think that's where history is helpful, in every case, once you got rid of those systems, prices go way down and shortages disappear.
Today you can basically open up a new business without permission in the vast majority of industries - you can start your own software company or t-shirt company or laundromat or whatever. And the industries where you can't do that, you see a lot of high prices and consumer dissatisfaction, housing being a prime example.
Of course, in San Francsico (the capital of rent-seeking), you do actually need the permission of all the surrounding businesses and residents before you're allowed to start up a business.
As for your question “How did we get here?”, I don’t have a good answer, but I have an anecdote.
In the small town where I live in the Shenandoah Valley, the county can’t get a new courthouse built despite being under a court order to do so (because apparently the existing one is unsafe) because of historic preservation laws. And it’s not just the handful of people in the historic presentation commission - when they submitted a design for a new build, yard signs protesting it popped all over town in a matter of days. And now there is controversy about them moving the court to a different town entirely! There was already one referendum about all this that vastly favored the status quo.
This is emblematic. The historic preservation laws drive up renovation costs in residential property, which means that renovations cater to the high end market to recoup those costs, and then the city provides a tax abatement for 7 years (!), only charging tax on the pre-improvement value of the home, which may be a difference of $100k’s! So they forego affordable housing *and* tax revenue! All this to save old buildings, most of which have no historic value other than their age, and many of which are really dilapidated, if not abandoned.
I can only assume that the people who favor this arrangement don’t bear the costs, or bear them indirectly enough to not care. They already own their homes, often outside the preservation districts, and mostly visit the (relatively) successful downtown core, not the run down areas. At shy rate, this genuinely seems to be what the organized, voting portion of the population wants. I guess the people bearing more of the costs misidentify the problem and/or vote for the alternative with their feet.
Sorry for the rant.
I guess another alternative is that we actually live in something approximating the best of all possible worlds, and what we see as inefficiency, irrationally, and injustice is actually a necessary, ugly compromise for preventing a large, complex, messy system from imploding.
The alternative is possible but then doesn't really explain why this anti-development stuff is so restricted to a handful of wealthy major cities, mostly in English-speaking countries. Japan apparently doesn't have a lot of building restrictions, same for a lot of European countries, you can build what you want in Houston, and really in fact most of the South and Midwest. But you look at the UK, the coasts of the US, some cities in Canada and Australia, it's totally different.
I think your anecdote is a bit closer. The beneficiaries really care and are well organized but the people who are harmed either are diffuse and ignorant (and lied to) or otherwise have no power.
The people who are really harmed if San Francisco doesn't build housing are the kids of people in say Boise who can't move there after graduation and get high paying jobs and network and learn skills. I doubt anyone in Boise knows that, or would even believe that if you told them.
Everyone always points to the 60% of the country that owns their own homes so maybe that is it - but really these policies mostly benefit like the top 5% that own homes in these urban markets, and are probably a net loss for homeowners in the middle of the country whose kids will have to find a way to pay up for that New York apt if they get a good job there.
"The people who are really harmed if San Francisco doesn't build housing are the kids of people in say Boise who can't move there after graduation and get high paying jobs and network and learn skills. I doubt anyone in Boise knows that, or would even believe that if you told them."
And I would say that the harm is in not building up something in Boise that can be comparable in excellence to San Francisco.
It is physically impossible for every single person in the country to move to San Francisco to get "high paying jobs, network, and learn skills". Even if we assume only 10% of this year's high school graduates are smart/talented enough to get a "high paying job" in San Francisco, that can't happen. No matter how relaxed your zoning laws so that there are multi-storey apartment buildings on every square inch of land.
The real damage is in making San Francisco or any other major city a bloated megapolis swallowing up talent and hollowing out the rest of the country. Build up Boise into a major city with high-paying jobs for the talented, and San Francisco doesn't have to try fitting a quart into a pint pot then.
I think the idea that we can somehow build up every third-tier city to compete with megalopolises is a far-fetched one, at least for now. You run into this agglomeration effect problem. People want to live where there are a lot of jobs to choose from in their industry. Employers want to locate where they have a lot of potential employees to choose from. They also want to locate near their suppliers and customers. But then on top of that young people want to live where they have a lot of potential mates to choose from (perhaps one that works in another industry). Different creative industries want to be close to each other to share ideas. Highly dense cities can uniquely support cultural amenities like Broadway. And so on.
When you look at any wealthy country today, it tends to be dominated by a small number of big cities. Something like half of Japan lives in Greater Tokyo or Osaka (admittedly broadly defined). It's nice to say that people should want to live in Boise but people vote with their feet. I don't see any point in pretending these greater economic forces don't exist - proximity is productivity.
I also don't agree that it's physically impossible for everyone to move to a major city for part of their lives, if they want to. I think it's already possible. SF, LA, NY, DC, Boston, combined is already maybe a quarter of the population (if we consider the entire metro areas)? So if everyone wants to spend 10% of their lives in one of those cities, I don't think that's an issue. I don't think you have to be smart or talented enough to get a high paying job to want to live in a big city, at least for a while. Normal jobs in those cities pay a lot more than normal jobs in other cities, and it's not just a function of rents, it's a function of being close to rich people who can pay a lot more for local services. For every software developer, a city needs teachers and doctors and baristas and policemen and so on.
My alternative explanation is extreme, and the truth is probably somewhere between “people are uniformed / lied to / powerless” and “this is actually the best way to balance lots of competing interests”.
But I see no reason why the situation in, say, SF should be similar to Houston, Japan, or Canada. Different history, culture, interest groups, etc…
It looked from the article like legal restrictions such as historic preservation laws are part of the land value calculation. Such a plot would presumably have a significantly reduced land value because nothing else could be done with it other than historical preservation?
The whole context of your post is contrasting "society" and "people" with "landowners". I feel that this is a fundamentally wrong perspective, a false dichotomy. The USA home ownership rate is something like 65%; in general, society and people *are* landowners.
Any solution that looks at the interests of the 1/3 of society who are renters and fails to protect the interests of current homeowners cannot be described as helping "people" or "society" as it ignores most of them.
The way I see it, society is already looking out for the 2/3 an awful lot more than the 1/3. (and the resulting pressure from people crowding to get into that 2/3 has already collapsed the world economy once in my lifetime)
Sure, screwing 1/3 of society is not bad and should be improved; however, doing it by screwing 2/3 of society is not an improvement, it's worse.
I should have probably said "wealthy big city landowners" instead of "landowners". Yes, 65% of Americans own land, but most of them own a negligible amount (at least financially).
This is visible in the graphs on the first post, but basically if you own a median home in LA or SF, you probably own $1 million of land, and if you own a median home in the middle of the country, you might own $20k of land. Really we are looking at the interests of 5% of society, not 65%. Even within these big cities, the homeownership rate is really low - like in SF maybe 35%? - and big cities are significant but not that big a % of the populations. Like the entire Bay Area is 6 million out of 330 million Americans. LA and NY are more like 20 each, but those include less wealthy areas.
The median home is something like $300k now, and that's mostly the structure. I think the first post had a chart showing that outside the biggest cities, real estate value is mostly attributable to the structure. You can verify this by looking at Zillow, or even the income statement of a publicly traded homebuilder.
I think this runs into the same problem as the Republicans who get everyone into 401ks and declare that since everyone is a stockholder, corporate tax breaks benefit everyone.
Truly, I am probably fine with tax breaks for the vast majority of small landowners in America, this is not about them at all. We can have a graduated property tax or land tax in the same way we have a graduated income tax or capital gains tax.
*Who* are those "5%"?
The far left of the curve for "paid rent property owners" are REITs, which are then themselves finantialized and trading on the open market, which means in practice they are owned by the 401K funds, which means in practice they are owned by the set of all the average employees saving for their own retirement.
Yes, yes yes, "Bill Gates farmland". Bill Gates is the primary investor in a handful of REITs that own that farmland, and they lease that land to a handful of giant agricorps, who pay the "rent" by putting still remarkably cheap food in grocery stories. And most of these companies are finantialized, and thus mostly owned by 401Ks themselves.
There are no "money bins", there are no mustache twirling greedy landlords, and outright real estate hold to sell speculation is in a handful of toxicly dense and overly blue cities. The vast majority of "the wealth" in the US is third hand owned by the bulk of the population, investing in their own retirement.
I think this whole conversation is really about the "toxicly dense and overly blue cities". That's where the bulk of the land value is in the US today, which I think the author showed on the first chart. If we just want to make a set of rules that apply to toxicly dense and overly blue cities and exempt everyone else, that's probably ok.
The landowners in these cities are a matter of public record, and they are very vocal and public about their views - see the comments by the SF Board of Supervisors. It is a lot of millionaire homeowners (I think even SF is 30%-40% that), and then also a lot of small landlords. Big REITs like Avalon and Equity own a small # of units (I would guess no more than 10k-20k in a city like SF that has 300k-400k) they are very open with shareholders that returns depend on blocking future development but they generally try to keep a low profile.
Wealth in this country is very unevenly distributed (at least relative to income) and so most stocks (including REITs) and bonds are held by the top 1% or 10%. I think the top 10% own 70% of all wealth and 90% of stocks now. Land is not a heck of a lot different. I'm not trying to solve this problem (to the extent it is a problem), I agree we are probably not concerned about Bill Gates's farmland. But there is no reason to cater to a couple of million landowning households in blue cities at the expense of the other 120 million households in this country.
Honestly, fuck the "toxicly dense and overly blue cities".
If they are so allocation dysfunctional they need Georgism, they can have it, as long as they stop thinking that particular variety of political chemotherapy should be forced on the rest of the country.
That is, of course, really the fundamental problem with the toxicly dense and overly blue cities", is they seem unable to NOT want to force their problem causing "solutions" on everyone else not like them.
The point Philo was making above is that most of the harm of this policy falls on homeowners in or near large "overly blue" cities, so apparently both sides of this debate are happy for us to suffer, but perhaps don't blame this policy on us when we'd see the largest losses from it? I assure you we'd be some of the most opposed to Georgism as we'd face the largest LVT payments, certainly not the ones forcing it on the rest of the country.
It doesn't look at the interests of 1/3, it looks at the interests of everyone who is not a speculator. That is the interests of 99%+ of the population. Short sighted people who expect to profit off of home ownership rather than expecting to have a place to live are not actually harmed by an LVT, they just perceive it as harm because they look at the speculation they lose to LVT, and ignore the gain they get from their other taxes being removed.
My cliff note summary of my reaction to this set of articles (and even more the comment responses):
One: The eminent domain example is not as useful as commenters pretend. Partly because it requires compensation, partly because it's extremely rare and partly because any attempts to use it for economic development have produced massive backlashes. Yes, the Supreme Court upheld the right to do so in Kelo, and then the President signed an executive order saying 'we won't do it at the federal level' and 45 states passed laws saying they won't do it at the state level. People don't appear to agree that this sort of action is in fact moral.
Two: Despite the many problems with the current housing market, approximately 65% of Americans live in houses owned by a member of that household. It therefore seems likely that people are not going to support this in large numbers, or at least in any actual majority.
Three: I realize Georgists appear to really like the abolitionist analogy, but it doesn't work and is deeply stupid/offensive to normies (and, hey, me too).
Yes, Georgism has a ways to go as far as working out how to convince the general populace. A big problem is that there isn't really any special interest group that would greatly benefit from its implementation- it benefits nearly everyone, but that benefit is spread out pretty equally. Making people see that benefit though, particularly after so many years of pounding into people's heads the idea that "landownership is the key to social mobility and economic stability" is the hard part.
As far as transitions and compensation goes there is certainly a good case to be made. It is not reasonable to punish people who have simply done what the system incentivized them to do, and I have no interest in doing so- all I want to do is change the system, so that in the future it can run on a better, and more just, basis.
And also it's just reasonable politics, so there's that, and Georgists will have to recognize it if they want to get things done.
Well, to be clear, I don't think this is a problem of people being unable to identify benefits. But rather, the total denial of the existence of any non-transitional costs. On the economics, I totally lack the understanding to have a hard position. But, here's the thing, as a general rule people don't like it when they (or other people that they like) are forced to leave an area.
I have a lot of problems with the general narrative around gentrification, but my sympathies are generally going to be with the person who is being forced out, not the economic damage that they're doing by viciously being poor and trying to live in the same place they always have. And I do not believe I am incorrect in that and I do not believe there is an economic argument you can make which will make me incorrect.
The Georgist argument is that the confiscation of land rents is what is making them poor in the first place, so really you are missing the point. Is there a cost in transition? Yes, absolutely. But you can't hold reform hostage to the status quo simply because it has a cost- everything has a cost. The question is whether the benefits outweigh those costs, and the answer in the case of Georgism seems pretty clearly in the affirmative to me.
And my response is that I do not believe it is correct that you've found the one weird trick to solve poverty, which has never successfully been used by anyone ever. If you want me to believe that then you're going to need some actual real world examples where it's brought in and sticks around, not a couple of academic papers. And I'll argue like hell to make sure your experiments take place a long fucking way away from me.
Wolf Ladejinski, the economist in charge of overseeing land policy during the economic reconstruction of Japan and Taiwan, was a Georgist and implemented Georgist policies in those countries. Singapore is run along largely Georgist principles, as was Hong Kong up to the late 1990's. New Zealand and Australia had significant land value taxes during the 20th century. While no place has ever switched solely to a single tax, we have pretty good empirical evidence that it works, and at the very least good evidence that it doesn't wreck economies- all of those cited are widely agreed to be very livable places. If you are unwilling to engage with either evidence or theory because you have some intuition or economic incentives you refuse to renounce, there's not much anyone can do for you I suppose.
Hang on...Hong Kong, Singapore, new Zealand and Australia have solved the problem of poverty? My goodness, that's good news!
Wait, no, except for Singapore (which has a bunch of confounders) they all have poverty rates in the same range as the U.S.
This is what drives me up the wall about this sort of thing. If your argument is, 'hey, we think this is a better way to allocate taxes, let's focus on the value of your land + your neighbors improvements rather than your improvements,' that's basically a fine argument that people can accept or not. But instead it comes bundled with this notion that it's going to solve a bunch of problems that it demonstrably does not solve in the places it has been partially implemented.
Also, if you're actually seeking to convince people in any numbers, suggesting that they hold their beliefs because of economic incentives is not generally going to be a successful means of argument. And, oh boy can it come across as condescending and offensive. Especially since a cornerstone of your argument is that your position will be better economically.
But to be clear, the incentive I refuse to give up is two-fold and neither is economic (I do own a house, but I'll be fine either way, as I could continue to pay the LVT + mortgage without any major difficulty).
First, I disagree with the notion that it is improper to benefit, economically or otherwise, from luck/inheritance/the actions of others. What is improper is not that some benefit, but that many others suffer and there are better ways to resolve that. I have the incentive to continue to believe that the correct response to being lucky is to shrug and be happy that things broke my way. And when I'm unlucky to shrug and accept that sometimes that happens. Luck is morally neutral to me and I wish to keep it that way.
Second, in my view modern society already pushes towards fragmentation, separation, mobility and self-sorting which are antithetical to creating stable communities and stable-intra cultural/political groups. It appears to me that this proposal would unintentionally significantly increase that trend. The goal is to sort property and people by land value, which will inherently increase mobility and when people have to move, they will tend to move into like-minded communities.
A final point, I really love 'these places all HAD georgist taxes' as an argument for their greatness, rather than as fairly clear evidence that this isn't nearly as big a success as you're arguing it should be...
Neither Australia nor NZ's experience say anything interesting about Georgist policies.
Australia has land taxes varying from 0.5 to 2.5% depending on the state one is in and type of land (one's own home is usually exempt, rates usually rise a lot with property value with a generous zero bad at the bottom). I can't find figures for the total take as a percentage of *all* land value, but I'd eat my hat if it's even near 1%. Note that this is less than 100%, indeed less than 85%.
Thus you get a tax which is FAR away from the Georgist ideal, and comparable in burden to property taxes in the US, 'rates' elsewhere, and so forth.
Lars cites the 1% objection rate (of Australian assessments) as evidence of something. If I own $1.5M of land in Sydney (not my own home, and not counting improvements) it seems I owe about $11K in land tax. Is it worth fighting the government to tweak that slightly?
NZ eliminated its land tax entirely over 30 years ago, but had dwindled in important to a near revenue-triviality by the 60's or even earlier. It was never large as a percent of land value. I found citations to many studies that looked but could not find *any* of the hoped for positive effects, beyond mere revenue raising. The sources I find are inconsistent on what the rates actually were, but seem to be about 0.5 - 1% with many exceptions.
I don't believe it's fair to say that either place had 'significant land taxes' during the 20'th century (at least by Georgist standards), and all it really shows that 1% or so rate doesn't wreck economies. But a similarly sized local taxes based on land + improvements (traditional US property taxes, for instance) don't either, and at a low level is there really a huge difference?
People in places being gentrified are poor due to the system as it is. Those people are going to get kicked out of areas as demand for them increases under the status quo system just as much as they would under a Georgist system.
Georgism will ensure their descendants don't get kicked out of the next place they settle.
And local residents fight that, they don't support reordering society to make it easier to displace them if they happen to live somewhere that's becoming nicer. And they are right to do so.
But they are going to get displaced anyway. They can get displaced by someone rich who tears down their home and replaces it with another single family home, or they can get displaced by someone who is willing to build multi-unit homes so more people can live there.
Your argument might be valid when our population stops growing, but right now you're just saying that new people born into the world should suck it up and have a shitty life because that other person got there first.
Or rather, I'm saying that it is in fact worse to actively make people worse off than it is to fail to make other people better off, unless there are no reasonable alternative ways to make a larger number of other people better off. As I do not believe that is correct, I do not believe this is moral.
It particularly benefits the young and urban who worry that they'll never be able to afford their own home. (or rather that they'll never be able to afford their own home and also that homeownership is unfairly lucrative compared to other investments)
"It particularly benefits the young and urban who worry that they'll never be able to afford their own home"
Why would a Georgist system help them? The idea might be "a house in this area costs $X00,000 which is way too much, but if the land were taxed instead, the house would only cost me $Y,000 which is easily affordable", but in practice it is "the land is in a desirable area, that is why prices are high, so it is more practical to put up an apartment block here than a single house". Your young urban couple can have a flat, but not a house of their own, since wanting a house in the desirable part of the city is inefficient land usage.
If they want to move fifty to eighty miles away to buy a house on the cheaper (because less desirable) land, then they may be okay - but then we run into "nobody wants to live out the country with no amenities, this is *why* the land is cheap" problem.
As such a system matures, and a bunch of new apartment blocks are built, wouldn't the resulting lower demand for housing start to pull down land values? I imagine it would get to a point where building an apartment building of a similar size to existing ones nearby is no longer profitable, and it would start to become realistic to buy a house in some desirable areas (still maybe not right downtown). Wouldn't this effectively prioritize meeting the overall demand for housing versus individuals' desire for their own properties? I would at least support this in urban areas currently experiencing a housing crisis.
Neither of these options deals with why people want to live in the city to begin with. Lower prices in the city will increase demand, which will increase prices. There's still an equilibrium for as long as living in the city is desirable.
It seems to me that for all but the most famous/desirable cities (like London or New York), as housing capacity increases, there will be a point where the number of people who want to move in but cannot do so tapers off and/or crowding makes the area less of a nice place to live. Now I admit that stuffing every neighborhood with more people until it's a crowded mess doesn't seem like a great idea. Therefore I think some zoning will still be needed, but only to the extent that it prevents local services from being overwhelmed.
> so there's that, and Georgists will have to recognize it if they want to get things done.
Yes, my impression from the whole series is that I like an LVT more than I did at the start, but the Georgists are so annoying that it doesn't matter. They'll burn their allies instantly and make everyone else hate them, crying that they're being oppressed.
The reasonable Georgists should take the loudmouths into a quiet room and have a quiet conversation with them.
Perhaps we should, and if happened to be dictator of Georgism I should like to think that we would have better messaging! But as it happens I am- unfortunately- not. As it is I have to trust that people will be able to see past potentially annoying Georgists and weigh the idea on its own merits- which I suppose is a stretch of human nature, but I happen to be optimistic.
I live in a house I own. If you replaced my current property taxes with LVT at the 5%/85% level, my annual taxes would go down by more than two-thirds. 'twould be cool. Georgism now, because I would personally benefit.
The tax would be paid back out to people. People having such income would make them more able to afford houses, This means that your property value would go up. And you'd then pay more.
>So if the public accepts your valuations, and new market signals match your assessments, then they can be said to be accurate.
Feels like a big leap. People see their homes every day, invest into repairs, maintain them, are proud of them etc. Land valuation is a much trickier concept to somebody who bought a house 20 years ago, does not work in real estate, and likely barely understands the formula to begin with.
How is it a big leap to say that if you assess a property at a certain value and:
1) The homeowner looks at it and accepts it without complaint
2) Market transactions for similar properties, or that very property, match the predicted values
That the assessment was accurate?
One general question about Georgism that I don't think I've seen an answer for:
At the end of the day, don't landowners make up the communities that their land value benefits from? If a thousand people build up a town on their own small plots, their land becomes more valuable, but each put in a small fraction of the effort that gave all of their neighbors' plots more value. Why should that be taxed?
I get the impression that Georgism want to tax away the valuable communities, business areas etc. that landowners, business, residents, and such because land is natural, but doesn't this land value ultimately derive from the labors put in by the community to build it?
I think I just fundamentally disagree with the moral premise here
No, that is actually the point of Georgism. Land values are created collaboratively by the community, but landlords take that value and expropriate it for themselves. The tax system then takes value that was created by individuals- their labor and investment- and takes that to use for social purposes. Georgists propose to remedy this.
"The tax upon land values is, therefore, the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by Nature be attained. No citizen will have an advantage over any other citizen save as is given by his industry, skill, and intelligence; and each will obtain what he fairly earns. Then, but not till then, will labor get its full reward, and capital its natural return."
But the landlords are the community!! At a local level, a city full of single family homes is full of people who own their own land, and at a broader level the United States you want to fund includes at least a large majority of the people who own land in it.
In contrast to the current Income Tax system, where everybody in theory chips in in accordance with their earnings and therefore ability to pay, Georgism seems to want the landlords to pay for the entirety of the system that everybody, landlord or not, enjoys. That doesn't seem equitable at all
The landlords are part of the community but they are not the community. Are renters not part of the community? They contribute as well! Furthermore, lots of landowners and speculators are in fact not part of the community. In many major cities large percentages of land is owned by institutional investors and absentee/foreign landlords. Blackrock buys up residential land for that exact reason: it can extract value from the community while contributing nothing.
Landlords in their capacity as landlords do not contribute. They contribute in their capacity as builders, workers, customers, neighbors- by providing products, services, and investment. Georgism does not penalize this- the current tax system does. Landlords extract that value while providing no service in return.
Let's look at it from a different perspective. Land is not a good which was produced by anyone, so Georgists argue it cannot truly be owned by anyone. Access to land is a common right, and so if you wish to own land and deny other people the exercise of their right you must compensate them the value of it. This is the land value tax- you can think of it, if you will, as a use fee.
"if you wish to own land and deny other people the exercise of their right you must compensate them the value of it" - but that is exactly what has happened; people have paid the previous owner or, originally, the government for their land, so they have compensated the society for those rights (perpetual rights!) at that point - or in some cases, gotten granted these rights (again, explicitly as perpetual rights) for various things the society considered desirable e.g. military service, colonizing the frontier, etc.
While all this land was common land, the society explicitly chose to parcel it and award it to people, and so returning it back to common land (if you'd consider that as "natural perspective") is taking of property for common good, and e.g. the US constitution explicitly asserts that the society *can not* take property back for common purposes without compensating the owner.
This is true on the frontier, which is why frontiers tend to be equitable and have good growth. Because if there are just a handful of us we can probably find 10 plots that are all relative equal in opportunity.
But as soon as the frontier no longer exists, all land is claimed, then there starts to be a gradient in land quality and eventually there is no land worth claiming, which means Ricardo's Law of Wages takes over and land lords can pay subsistence wages and extract rents from their economic activities.
Then most of the land value taxes from a city should go to the city and perhaps the county government, rather than a state or national government, right? With higher levels of government only getting tax on what would be value of the city's land as agricultural land. And if land values are higher in a neighborhood of a city, then the extra tax should stay in that neighborhood.
Doing otherwise would not only be unfair, but it would also make the tax no longer free of deadweight loss. Consider a developer who buys a large tract of empty or agricultural land, builds a town on it, then sells it off as small plots. If the new owners would now have to pay higher taxes in total to the national or state government than its previous owner, that would reduce the incentive to build the town.
Even if land value taxes resulting from the extra value of a city or a neighborhood would go to that unit's budget, I don't really get how this would work in the context of a new town or neighborhood. Would the new town be required to implement this form of Georgism? That may reduce the value the developer can capture by selling off units, thus disincentivizing the development. Or can it decide whether the new town is to implement Georgism or not (except that it has to pay the tax on its value as unimproved agricultural land to the state/national government)?
Scott got two pie-in-the-sky ideas, Georgism and model cities, that may be difficult to reconcile.
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Actually, if the proceeds of the tax on extra land value produced by the community remain with the community, that wouldn't work either. Rents in big, productive cities are high because many people want to live there: demand is high and supply is limited, so rents rise until only as many people are willing or able to pay them as there is space for.
Now let's say the city institutes a land value tax, and distributes the proceeds to the residents, including tenants, in some form (services, or cash outright). Now tenants are effectively getting back part of their rent. But this has just made the city a(n even) more attractive place to live! So more people want to move there, demand increases, so rents increase. The land value assessors eventually catch on, and raise the taxes. And so on. This creates a spiral where every increase in rent results in an increase in land value tax, and thus an increase in the value of the services financed from that tax that the residents receive, and every increase in the value of those services results in an increase in rent.
Georgism attempts to create a system where the effective rent tenants pay (that is, rent minus LVT redistribution received) doesn't increase as a result of land scarcity. But the effective rent increasing as a function of land scarcity is exactly the mechanism that's needed to create a market equilibrium.
In my city, around 55% of people own their own home and land, but 100% of the people in the city make up the society that is giving that land its value. Is it moral for the 55% to profit from the work of the 45% without reimbursing them?
Whatever value they provide to others, they are doing so voluntarily. That's another way of saying that they are already being paid the market-clearing price for their services. Trying to pay them more for their services would put the market at disequilibrium, and lead to weird effects—like what I described in the second part of my response to the comment above yours ( https://astralcodexten.substack.com/p/does-georgism-work-part-3-can-unimproved/comment/3984715 ).
That's akin to saying that serfs in feudalism provide value voluntarily and are paid the market-clearing price for their services. On one level, sure, but we can see that a feudal society is not an ideal state for most people to live in, and not one that results in most people prospering.
Similarly, in a society that is increasingly divided into those who own land and those who do not, with the "have-nots" growing in proportion, we start to see increasingly negative results, despite the "have-nots" having the freedom to take their services elsewhere.
In reality, moving to another city where you are also subject to being a renter isn't any more desirable, and at least you have your social connections in your current city. Extracting economic rents from society is pretty much an objective drain on society, and it is no surprise that as the burden of economic rents increases, we see an increasingly unstable and unhappy population.
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Your response you mentioned doesn't describe a bad society as far as I can tell. It isn't particularly horrific for a city or country to be so desirable to live in that people want to move there...in fact, that sounds like a fantastic place to be.
Serfs didn't provide their services voluntarily, because they often weren't allowed to move freely between landlords, and because all valuable land was owned. Now, I see at least a theoretical point in Georgism when it comes to taxing the agricultural value of land.
However, when it comes to providing extra value to city land by living there, that's voluntary. People can choose which city they live in, or they can live in a village with low land prices; they are (or at least should be) even allowed to buy cheap land in the middle of nowhere and start a new town.
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It's a good thing if a city becomes a more desirable place to live in. The problem is that I see no mechanism in Georgism that matches the number of people who want to live in the city given the conditions it provides to the amount of people the city has space for. The market tries to set what I called "effective rent" at equilibrium level, while the government tries to set it below equilibrium level, resulting in rent and tax spiralling towards infinity.
Ricardo's Law of Wages. Wages tend towards subsistence when land is not owned in common, because people can't use their own labor without paying a fee to a landholder.
Rent does take up an increasing portion of wages if supply of real estate is inelastic (fixed), and productivity increases. However, wages don't tend to subsistence unless demand for housing is very inelastic, or if landlords form a monopoly (unrealistic).
And the supply of city housing shouldn't be inelastic. If it is, that's because of restrictive zoning regulations. The problem of high rents would be largely fixed by relaxing those regulations; indeed, that's pretty much the only way to solve a problem caused by high demand and limited supply.
Zoning isn't the only thing that makes housing inelastic. There is simply a fixed amount of land area and often times not enough incentive to upzone or build more densely.
Ultimately, without a LVT, you end up encouraging sprawl and end up with these monstrous suburban metro areas like Seattle-Tacoma and Dallas-Ft. Worth.
> Zoning isn't the only thing that makes housing inelastic.
Yes, I meant that without zoning, it wouldn't be perfectly inelastic, not that it would be perfectly elastic.
> Ultimately, without a LVT, you end up encouraging sprawl and end up with these monstrous suburban metro areas like Seattle-Tacoma and Dallas-Ft. Worth.
Without zoning, but without an LVT, there is an incentive to build more densely if that's the optimal thing to do. LVT doesn't change what's in landowners' best interest in this regard. It may make it harder for landowners to go against their own interests and use their land inefficiently without going bankrupt, but it's in landowners' interest to use land efficiently either way, and I'm not convinced they aren't generally doing so when legally allowed to.
I'm not even sure what's wrong with urban sprawl. What *is* wrong is if people live in far away suburbs, but commute to the city center daily, resulting in long commutes and traffic jams. This could be prevented by building multi-center cities, so that people can find most amenities and jobs within their neighborhood. Or, at that point, just multiple smaller cities.
Ultimately these questions depend heavily on what makes big cities so desirable in the first place, which I don't fully understand. I understand their desirability for very specialized professionals, of whom only a few workplaces can make the best use of their skills, and workplaces have to choose from a small pool of potential employees. However, I'd guess only a small fraction of the population works in such professions.
The www.gamedatacrunch.com link appears to be broken.
Why would people invest in large scale area development under Georgism? Such development will often raise the value of land itself, and importantly, the land around it, which has no inherent value absent the uses it is put to. Take the example of Gurgaon, a sort of suburb of Delhi, India. A bunch of real estate developers bought up large parcels of land that were essentially worthless, invested huge sums of money in creating office complexes and infrastructure in approximately 30-40% of those land parcels, and used the appreciation in the remaining areas to recoup their investment and make a profit. As far as I can see, this would be entirely impossible under Georgism, and seems to raise a significant problems for the dynamics of growth and accounting for externalities.
The nobel Laureate economist Georgist William Vickrey wrote about this topic. Lars may go into these questions in a future article but I'll just note that a temporary "land patent" is a simple solution that doesn't really effect any other aspect of Georgism. And Georgist governments would be incentivized to solve this problem because doing so would ultimately give them more revenue to draw on!
By the latter argument, governments should also be incentivised to solve tax and regulation problems to maximise economic growth, but we have HEAPS of real world evidence to show that it doesn't happen.
A 'land patent' would work in what way? A long term lease? How would you price it? Especially for currently unproductive land? If you price it low enough, all the speculative 'problems' that currently exist and that an LVT claims to solve re-appear. Too high, and no one buys it. If you create a market for these patents, you've effectively recreated what we've got now with a few extra steps thrown in.
I would like to see those heaps.
Look around you? Most governments in the world are clearly not regulating to maximize growth and tax revenue. In the past century, less than 10 countries have grown over 5% for sustained periods (20-30 years). Japan, Korea, Taiwan, China, Singapore, Hong Kong, India. It can be argued that with the exception of India, the others have come close to policies that maximise growth. Just to be generous, let's add to this all the rich countries and say those are close enough to the frontiers that they are maximising growth, though there are plenty of serious objections to this. That's another 40 or so countries. So we have a total of roughly 45 out of 200 countries that have come close to maximising growth in the last century. Most governments simply don't care.
Public choice theory also establishes the mechanisms behind this quite clearly. Governments, i.e politicians and bureaucrats, optimise for personal incentives, not 'government' or 'National' incentives. They do what maintains or increases their power. Sometimes this aligns with maximising growth. Typically, it doesn't.
Maybe all of that is because people aren't trying, but maybe it is just really hard to achieve.
It is, of course, really hard to achieve. But mainly it is hard to achieve, especially for low income countries, because there are plenty of situations where there are obvious, well understood solutions on the table that would undoubtedly boost growth and welfare significantly, but nobody touches them because of public choice problems - concentrated costs, diffuse benefits(or vice versa). My point stands - assuming that governments will solve a problem or implement a solution because it will increase growth and hence increase tax revenue is an assumption that is largely unsupported by the real world
I asked in an earlier thread and there was an example town that started under Georgism, so it's apparently possible to get the initial investment to happen.
That's my biggest sticking point: it might not be possible to get the initial investment to happen without letting developers capture the return on land value. If it happened once, it can happen again, and with a few demonstrations (assuming it still works and wasn't a fluke) it should be very workable.
Fun fact -- readers from the comments who speculated about setting up LVT on Mars will be pleased to know that the elusive article by Hagman cited by Wyatt in part 2 that I couldn't find has been sent to me by an intrepid reader, and it starts off with some fairly bizarre fan fiction of Henry George III being directed by the Secretary of Space under orders of the president himself to go build the city of New Chicago on the planet of Mars at a location scouted out by Colonel John Glen II. We are given records of the correspondence as George III lays out his plans for Martian land tax policy.
I am not making this up.
https://twitter.com/larsiusprime/status/1469541646954115073
TL;DR -- what went wrong in New Zealand? Turns out Hagman (through the voice of fictional characters from space in the future) *DOES* support Wyatt's conclusion, saying that LVT failed on the city of New Chicago on the planet of Mars.
Reasons for the failure include:
- Difficulty with assessments
- OVER densification
- OVER taxation
Obviously New Chicago is meant as a cute frame story for pulling in alleged details about case studies from real world Georgist experiments but it all comes across as a bit of a muddle. It's not a great paper and it's main use is to mine it for primary source citations and look those up instead. We can at least say Wyatt wasn't jerking our chain here and Hagman supports his conclusion. The fictional space Valuer General of New Zealand from the future tells us:
"there was no evidence that the tax would (1) control urban sprawl and speculation in land; (2) encourage the construction of 'better' buildings; (3) encourage growth; or (4) cause slums to disappear."
Which being charitable seems like Hagman is interpreting the real historical evidence from Zealand, and that it didn't seem to have worked.
But crucially, Hagman doesn't tell us two things.
1) He doesn't tell us WHY the LVT experiment in New Zealand failed.
2) He doesn't tell us anything about whether LVT is or isn't capitalized into the price of land.
If we want to know more we have to look up the sources he cites, Bird (1961) and Assessors' Newsletter 102 (1961), which I don't currently have on hand.
I will point out that if your economists-in-space fan fic short story (complete with obvious authorial self-insert) gets rejected by your favorite Science Fiction magazine, I would highly recommend submitting your manuscript to the UCLA Law Review.
This miniscule (compared to Georgist ideas) land tax in NZ was repealed completely over 30 years ago, never achieved (according to all of the numerous the studies I've seen cited) any of the social goals hoped for (aside from just be ing a a revenue source)l, and was around 1% or less of land value (though with numerous exceptions that took it to zero) before it faded out almost completely in revenue importance (60 or more years ago ... it took a while for people to even bother to repeal it). Aside from these quibbles, it's a great example and hugely relevant for the Geogists.
Do you have any good sources on this I could study?
I found several, and I confess that though I spent an hour or two going through them (and tried not to go in with strong preconceptions) so I still skimmed massively. I didn't directly follow any of the references to claims that social goals were not found to be met (though I saw such meta-assessents of the source papers frequently):
The first is a Phd thesis (be patient):
https://researcharchive.vuw.ac.nz/xmlui/bitstream/handle/10063/9006/thesis_access.pdf?sequence=1
Here's an academic article:
http://www.austlii.edu.au/au/journals/eJlTaxR/2012/25.pdf
Other survey articles I found seem repetitive.
Separately, if you could be bothered, you might want to research the horrible, almost sordid, history of 'ground leases' in NZ which - from an assessment perspective only - are completely equivalent to 100% Georgist taxes. I wrote a separate reply about that. TL;DR: seriously ungood.
The fact that NZ completely removed LVT 31 years ago and was getting under 1% of government revenue from it 60 years ago is too easily sourced for you to need me to give you a cite for.
None of this argues against Georgist taxes (I take that back; the learned experience of 'ground leases', does - somewhat) but strongly argues that NZ provides none, zero, nada positive support either. It would be dishonest to cite it as support (or against).
I am very interested in the New Zealand case! It's something that had been on my radar for a while but I was unsure of exactly what the policy consisted of and what it had to say about the policy. I also seem to recall reading a paper somewhere that indicates that the peculiar land policy in New Zealand actually *predates* Henry George himself.
And I've already read one PhD thesis for this project, what's one more.
Sound like it'll be a lot of fun and there will be a lot to learn.
I don't know whether the policy predates George, but was certainly contemporaneous with it. (I should know, only yesterday I spent hours reading this stuff.) There was a lot of back and forth and George certainly came in to it explicity at some point. His ideas were in high regard by major poltical figures at the relevant times.
At that time, NZ was considered mostly empty (think, the American West) - since the existing native (Maori) rights were 80% ignored. A REALLY good time to introduce Georgism. And not just land taxes, but huge swathes of farmland were put under 'crown lease' (ground rent owned to the government) which is almost the same thing except even more 'pure'.
AND YET: The tax rate on first introduction was 0.7%.
Bit less than 85%. The 'crown lease' land was, effectively 100% land tax, but no one today thinks that is other than a curse. And for whatever reasons (disputed), even a sub 1% land tax that couldn't last 100 years.
I tried to be fair in my skimming. Except for the 'ground lease' issue, which I think is super relevant to the assessment question is different - I have no interest either way. On the ground lease issue, I've experienced this 'face to face' so to speak and read many papers from the valuation profession on it. I've lost a lot of money on it but, since this is a sunk cost, I still think I can be 64% objective.
> I've lost a lot of money on it but, since this is a sunk cost, I still think I can be 64% objective.
More than good enough for me. I'll take a good solid look at the ground lease stuff and pass it around to people who are smarter than me too. No promises on when I'll have something publishable, and I would appreciate folks like yourself kicking the tires to point out stuff I missed.
A couple of questions from reading the essays and comments (and apologies for anything that’s been asked and answered - the comments are piling up faster than I can read).
1. Many people seem to be assuming that the main (or at least significant driver) of housing costs is under-developed land. This seems implausible at least to the extent that the underdevelopment is blamed on landowner choices rather than governmental limits on development (zoning, building permits, environmental approvals, historic preservations, etc.). After governmental limits on development, I’d guess financing difficulties/bankruptcy and estate tax/step up in basis account for most of the rest of what folks see as under-development. If it’s accurate that LVT advocates blame high housing costs on landowners willfully under-developing property, what the evidence for this? I recall one example being an abundance of urban parking lots. I suspect folks are either underestimating how profitable parking lots are or are unaware of some legal restrictions that incentivize parking lots as opposed to parking lot owners being in sufficiently profit motivated.
2. I’ve read a lot of claims that a LVT has no deadweight loss and is non-distortionary alongside claims that an LVT will have significant effects on land use. It seems to me that if the first is true, the second would not be true almost by definition. What am I missing? (This may just be another way of asking the first question).
3. There are a lot of references to real estate ‘speculators’ (usually with the scare quotes) mostly in the comments and with the clear (often explicit) sense that these folks are engaged in some immoral enterprise. Is the idea that real estate investors are somehow less moral than other investors (or at least engaged in a sleazy business) inherent to Georgism or is Georgism just attracting folks who think real estate investors are bad?
4. The value of a particular plot of land depends on many things some of which are known, some of which are unknown until someone takes a risk and invests the money to discover the unknowns. Like other entrepreneurs, real estate developers make (and lose) money taking risks on those unknowns — whether it’s the outcome of a simple perc test, a rezoning application, or even market demand for a type of development. Assuming accurate assessments, a close to 100% LVT, and land value being a high percentage of total value, isn’t the incentive for making the investments needed to ‘discover’ the hidden value of the land at least greatly diminished if the discovered value gets taxed away? Wouldn’t this result in less rather than more ‘best and highest’ value development?
1. You are right in saying that zoning reform needs to happen along with LVT. Lars has also acknowledged this in the comments, it's just outside the scope of the articles he's written (they've been pretty exhaustive already!) However, you would still be surprised at the amount of land underdeveloped even within existing zoning that exists in cities. I don't have any data on-hand right now but if you join the GeoPraxis Discord server I can hook you up with people who do. And don't forget, underdevelopment can be qualitative as well as quantitative: a place can be underdeveloped by having decaying, cheap fourplexes where it ought to have larger, new ones.
This goes directly into 2 and 3, which are best answered together: an LVT does not produce deadweight loss, and so is nondistortionary as regards best land use. What it does do is reduce- or, at 100%, eliminate- land speculation. For example, a speculator right now can buy an underdeveloped parking lot in a city. This parking lot has low taxes, because property taxes punish improvements, but secures a modest revenue flow to the buyer, who can wait 10 or 20 years and sell it for a couple hundred thousand dollars more, with no risk or investment or indeed any effort at all from himself. Parking lots are only one example- slums and other decaying parts of inner cities are often underdeveloped from the same kind of speculative practices. As such, Georgists dislike land speculators not because they are particularly immoral, but because they cause economic inefficiencies which do large amounts of economic damage. If that seems extreme, remember that Progress and Poverty is subtitled "An Inquiry into the Causes of Industrial Depression," and that land speculation has a definitive link with economic recessions which hurt everyone- 2008 is an easy example of speculative land practices leading to major economic harm.
4. This is in essence the 'search theoretic critique' of Georgism, for which I have some sources on hand:
Folvary responds here: https://link.springer.com/article/10.1007%2Fs11138-013-0243-7
There's a brief response by Noah Smith in "A misguided attack on Land Value Taxes" http://noahpinionblog.blogspot.com/2015/03/a-misguided-attack-on-land-value-taxes.html
Terry Dwyer also covers this more extensively in his "Taxation: The Lost History" in various sections, such as "Rent As Reward for Risk" - https://www.jstor.org/stable/43817496?seq=34
and "Discovery of Natural Resources - https://www.jstor.org/stable/43817496?seq=187
After logging in to the site (gmail account works) you can go to these links to jump to that specific section.
You would be better off paraphrasing the argument instead of linking to papers that are hard to access or non-responsive(noahpinion)
"This parking lot has low taxes, because property taxes punish improvements, but secures a modest revenue flow to the buyer, who can wait 10 or 20 years and sell it for a couple hundred thousand dollars more, with no risk or investment or indeed any effort at all from himself."
I don't think that's entirely true; someone operating a parking lot has to charge and collect the fees, for example. Make sure the surface gets repaired or else there will be complaints about damage to tyres from potholes. Maybe provide some form of security (CCTV) depending on location, in case of theft or break-ins. Yes, they can make (relatively) easy money, but if people are paying for parking, then they are providing a service. Turn the parking lot into housing or shops, and where do the people who used to park there go?
This article expands on urban parking, its necessity and its disadvantages (but it is insufferably snobby: "Urban innovators are tired of accepting parking as a necessary evil and are promoting solutions to mitigate the negative impact that parking has on cities." Oh really? And what about the ordinary people who use their cars to travel to work in the cities or to shop and visit attractions? It's all very well for the 'urban innovator' who lives in a fancy apartment in the renovated downtown area and travels via taxi or Uber to sneer at 'ugh, parking spaces!', but without people, a city is nothing).
https://www.urban-hub.com/smart_mobility/some-parking-solutions-in-urban-centers/
In my experience articles about underdevelopment of parking lots quickly veer into car-owner-bashing and worshipping Amsterdam
The term ‘speculator’ seems to keep doing a lot of work. All investors are speculators — real estate IS different than financial investments in that the investor is also an entrepreneur incentivized to find a more profitable use, something average stock investor can’t really do. The idea that real estate investors (speculators) are the cause of under-developed land is the same as saying they’re insufficiently profit motivated. If property taxes have gotten high enough in a jurisdiction to discourage development, the problem isn’t the investors. I’m in full agreement that there is plenty of under developed land especially in cities, but I’m very unconvinced that a significant factor is insufficiently greedy ‘speculators’ otherwise know as investors. I think you’re massively discounting the many barriers to development that exist especially in urban and close in suburban jurisdictions and overestimating the satisfied parking lot owner factor.
There are all kinds of real estate investors — some are happy to buy a CVS at a 4 cap and take the safe and passive investment returns others are betting everything they have that the undeveloped plot of land can be something only they can see. I’ve personally been at both ends of that spectrum and lots of in between and know many others. I’ve yet to meet one who wasn’t open to making more money — except older investors waiting for their heirs to benefit from the step up in basis.
In trying to do a bit more research — I see the idea of land improvement patents. I think if implemented the patents would be the exception that eats the rule. From reading the comments, my sense is that very few of the Georgist proponents have practical experience in real estate investing and development and are massively under counting the entrepreneurial aspect of the business.
Let me try a different question — I’m partially convinced that a well executed* LVT would have less deadweight costs and less economic distortion than the current highly imperfect systems we have. However, that leaves me wondering why such a system would have all of the benefits being predicted in land use and housing costs.
From a passive real estate investor perspective, currently the rent I charge my tenant has to cover my financing costs (mortgage) plus operational costs and enough profit to make the investment better than the next best investment I might make (simplifying greatly here). Under a well executed LVT system, the rent I charge my tenant has to cover the LVT plus financing costs plus operational costs and enough profit to make the investment better than the next best investment. The net difference to me as an investor is insignificant. I don’t see why there’s a significant change in land use — except the earlier argument that real estate investors are just insufficiently profit seeking, which I find very unpersuasive.
The real complexity here is the tax advantages under the current system - I can deduct my interest costs and depreciation. If the LVT does away with income tax, the advantage of tax deductions go away - and other (non-real estate) investments become relatively more attractive. But I don’t think I have the brain power to adequately think through how that affects things. I will say I think anything that discourages real estate investment is highly unlikely to increase the supply of housing.
*I think it’s unreasonable to compare a well executed proposal to a poorly executed existing system, but I’m trying to grant the hypothetical here.
It seems to me that the greatest amount of good could happen quite easily by simply taxing the land instead of the improvements, with no changes in rates. Then developers are not disincentivized from building, if there is real demand to do so. Added to a removal of severe zoning regulations (which have nothing to do with Geogism, and could or could not exist in either system), it seems as though almost all of the benefits of Georgist LVTs could be had without ruinous land tax levels at all. Most of the good with almost none of the bad.
Everything else feels like an overwrought attempt at soaking the rich/landlords.
Please link to sci-hub url of these articles so that we can, you know, actually read them
https://sci-hub.mksa.top/
Why is "best and highest" the right objective. There are many uses for land that have less commercial value but high social value (non-profit stuff, medical care, parks, entertainment, education, etc, etc). You can answer this by saying government/local community can choose to exempt those activities. But doesn't that bring us right back to status quo except now politicians have even greater control over who gets preferential treatment? What makes politicians better decision makers in the Georgian world than the status quo?
Best use may very well be as a park or conservation land- you are reading things into my statement which I did not imply. Value is about what humans want, not solely about production, and by and large people want greenery, social services, etc. LVT actually incentivizes their development because the government benefits directly when such things raise the price of land. As for how to encourage them, there are a multitude of ways- from government creating them directly or subsidizing them, to development bonds (where returns on investment are equivalent to how much the development raised the price of land in the surrounding area).
I'll ask the key question again:
What makes politicians better decision makers in the Georgian world than the status quo?
We can get a lot more building today without messing with the underlying incentives.
Er, because they would be incentivized to make better decisions? That's the entire point I was making?
If you want people to make better decisions, you give them better incentives. Pretty simple.
City planners have incentives to allow more building today, yet they don't do it.
Many arguably have the opposite incentive
do they? aren't they elected by the nimbys?
The government doesn't decide what gets built, the free market does.
But the government would have less incentive to try to direct action through zoning, which is just a crude and corruptible approximation of what the community wants.
You've made an assumption that doesn't follow. Why is there less incentive for government to use zoning to block new development?
Because new development increases aggregate land values which increases the tax base.
Great piece!
1.
Smoothing: The biggest driver of a parcel's tax assessment is the sales price of those parcels near it. If I build an attraction (say, a sushi restaurant), I increase the value of those parcels and, by smoothing, the value of my own parcel. LVT ends up taxing me for a good chunk of improvements.
Multivariate regression (I had always referred to it as hedonic regression in the specific case of land/housing regression) can compensate for this by changing "proximity of the nearest sushi restaurant" for my specific parcel to the nearest *other* sushi restaurant.
Fundamentally, the incentive is to ensure that nobody near me can enjoy anything I build!
For homeowners I suspect this would be a mostly tertiary effect (though your neighbor is never cutting their treetops so you can have a view, that's for sure!). For large parcels--especially destinations like a supermarket-- I suspect it could be very significant. We don't want to disincentivize the creation of locations other people want to be near.
2.
Should I dump some oil drums onto the parcel near mine? When I was performing hedonic analysis of land prices ~15 years ago, I had to throw out all the ecologically damaged sites like former gas stations and industrial facilities because their residuals were so large and negative that they were throwing off the whole analysis.
(Our published paper was not designed for the level of accuracy you are looking for here, more looking at total land value in large metros.)
Can you link your paper anyway? Sounds interesting.
My fear here is you are essentially comparing an ideal land tax system to our actual income tax system. If you gave me a team of economists and a blank sheet I bet I could design a system of taxes that taxes undesierable behavior (internalizing externalities) and purely positionsl goods [1] and in so doing actually has a large positive effect.
What seems more relevant is some sense of how it will work in practice. There is simply no chance that universities and hospitals are going to have to pay this full tax. First time a uni is turned into a shopping mall because it can't cover it's yearly tax you'll get an outcry and they'll get some kind of exemption and then leverage that to make money as landlords etc..
Secondly, I fear the details of the uniform assessment process are a perfect place for shenanigans. People have a rough intuitive grasp of the idea of marginal tax rates on income and can have some sense of what that means in terms of extent of wealth transfer etc and while special interests get deductions voters can exert a fair bit of pressure to limit this. I fear that the politically influential could manipulate aspects of the assessment algorithm with less transparency.
Finally, I have to wonder how often the assessment process produces undesirable answers without hand adjustment. If a piece of property is unusual in having no space to build something reasonably sized on how does it get taxed? What if local ordinances bar development of that property? etc.... How u handle the edge cases (percent of income can't go too far off) really matters as you don't want lots of ppl caught up in long litigation.
[1] things like fancy watches where the value consists in having something better/more expensive than X% of ppl and actual features don't matter or designer clothes.
If Universities manage to buy the land they reside on,why wouldn't they be able to rent it?
Many universities are already significant landlords, both to the urban land and houses nearby, and to the agri land they got in their landgrants. This is *intentional*, the rent was intended from the beginning to fund the operation of the university, and was seen as an elegant way to turn something that remote regional governments had too much of (undeveloped land) into something it was short of (cash flow hungry higher education staff and facilities).
Thanks Lars, you've done it, by George! Three beautifully argued and closely analysed pieces, and I now feel I know so much more about LVT than I'd ever dreamed possible. I'm off to join Common Ground, and by the way, are you any relation to the legend that is Lyse Doucet, the BBC's chief international correspondent?
Probably only by very distant relation, never heard of them.
And the influential won't game the system by just bribing a local assessor. They'll do what they always do: first raise genuine concerns that complicate the system and *then* use the complexity and opportunity for discretion that creates to advantage themselves. My intuition is that this system would make that worse but I admit it's just a vague gestalt sense.
The question is not whether land value CAN be appraised accurately.
It's whether land value WOULD be appraised accurately.
And the answer is: If land value appraisal is put in the hands of the state, the aim of land value appraisal will be to serve the state, not to accurately appraise.
If it's going to be a land tax, let it be a land tax -- a flat tax per acre or portion thereof, and an acre is an acre is an acre, whether that acre is planted in corn, or is some family's retirement abode, or is the footprint of a 60-story high-rise, or is covered with oil derricks. Set the tax per acre low enough -- and therefore keep the state small enough -- that it's not a huge imposition on even the poorest user of the land.
How does that argument not equally apply to current property taxes, and taxation in general? If you're response is that everything is corruptible that's an argument against all of civilization
That argument DOES equally apply to current property taxes.
As to taxation in general, not all taxes are levied based on value appraisals by political officials.
That's not an argument against "civilization" unless you define "civilization" as "the power of the state to tax."
Value per acre is not a land tax and achieves none of the goals and in fact makes everything much worse.
Not to be rude, but flat taxes to me often seem like they're presented by people of simple mind who can't understand for don't want to try to understand the complex ways that the world works and flat taxes represent some juvenile conception of "fairness".
Flat tax per acre is BY DEFINITION a land tax. It's not a land VALUE tax, it's just a land tax.
If the goal is to finance whatever one considers the legitimate functions of government, setting the per acre tax at an amount that accomplishes it does achieve the goal.
If the goal is to allow the political system to play favorites with its preferred land uses, not so much.
To be blunt, this seems to be the weakest of the four instalments.
1) The author repeats several times the argument that in some jurisdictions that assess land value the assessments are seldom challenged, hence accurate assessments under LVT are quite feasible. The low frequency of challenges may be due to two factors: a) systematic undervaluation and b) low cost of overvaluation to the owner. LVT proponents intend to correct issue a) and their whole plan is to eliminate b). If I am a land owner, my incentive to challenge the assessment declines quickly with the cost of overassessment and with the likelihood of a lower assessment with additional scrutiny. So the current rate of challenges says nothing about the current precision of assessment and gives a very rough lower bound for the 75% LVT regime rate of assessments.
2) It is not realistic to have simultaneously "limited exemptions" and an "easily accessible relief program" and a simple cheap assessment regime for a program redistributing >20% GDP in the current political setup. All the political and legal resources that currently target tax law and application will be rationally thrown to fight for exemptions, reliefs, and quirks in assessment regime. LVT is less based on actual cashflows and market prices than e.g. income and capital gains taxes, so, by definition, it is more dependent on legislation and implementation details, and thus is more vulnerable to these attacks.
3) The more impressive your multi-level regression model diagrams look, the larger is attack surface for manipulation and the less reliable is such a model in the field. The only way to have a reliable market value assessment is to base it on frequent market transactions for land alone and these are not that frequent for an asset which is as granular and quirky and illiquid as land. So the whole section about fancy models looks to me as a strong argument against LVT.
Did you read Albouy’s paper from part 1?
Specifically, the part where he shows that pure-land sales are more frequent in the heart of urban areas than in the surrounding country side, and are in fact more and more concentrated as you approach the city center.
https://astralcodexten.substack.com/p/does-georgism-work-is-land-really?r=4aioh&utm_campaign=post&utm_medium=web
See "Albouy's astounding appendix"
Albouy's estimates for all of America's urban land values were based on estimates that came purely from pure land sales, which seems to have your explicit endorsement:
"The only way to have a reliable market value assessment is to base it on frequent market transactions for land alone"
Pure land sales are more frequent in places where many people live and plots are small (aka cities) than in places that few people live and plots are huge (aka countryside). This is certainly true, and the same is true about sale of many other things, like houses or ice cream. Still, empty plot sales are 1) less frequent than real estate sales in the same area by orders of magnitude 2) are often not representative of land nearby, that is, there is often a reason why a certain plot is sold vacant. This kind of dataset bias is very difficult to correct algorithmically.
Generally, I find it quite concerning that you are quoting Albouy. One should not confuse methods that can give us a rough estimate of the aggregate statistic and methods that are required to give a precise estimate plot by plot. With the former, nobody will suffer if we are off by a factor of 2 in aggregate and by a larger factor for individual plots as long as these individual errors roughly cancel out. For the latter, each of these problems alone would bankrupt a large proportion of local businesses with an 75% LVT.
Another issue is that a typical "empty plot" for sale in a city is pretty far from unimproved land - it has a complex web of sewage, water, electricity, broadband etc connections underneath it and is the result of centuries worth of flattening, rock removal, swamp draining, and road building work. I guess, some of this can be defined away as an improvement "subsumed in land value", but that just means that the unimproved value of a city plot is even more the product of somebody' fiat decision on which of hundreds of these improvements is subsumed and which is not. When viability of any business use of the plot depends on small quircks to these definitions, it is a good way to eliminate unemployment among tax lawyers in a well run place and a good way to fester extreme corruption in a badly run place.
> Generally, I find it quite concerning that you are quoting Albouy.
I am well aware that Albouy's method is best optimized for estimating aggregate land value over large areas, as I said clearly in the articles.
I was responding simply to your apparent assertion that we do not have enough vacant land sales in cities.
Look, I'm not some kind of absolutist. I'm exploring. I'm trying to figure out how to do this. I find it quite concerning that people seem uncurious about how we can get better at this sort of thing and are more interested in dismissing it entirely.
For instance -- let's say we can't do this perfectly. Is it still worth trying? Will trying result in disastrous effects, or will they be better than the status quo? Why?
I am quite curious how we could organise taxation better and this is why I read all four instalments and would like to thank you for taking the time to write them.
I just think that to actually work in practice, a taxation solution has to possess certain properties. For example, it should rely only on directly observable and expensive to manipulate inputs. This is the reason why capital gains tax is superior to a wealth tax even though a wealth tax makes much more sense from many points of view. The main reason capital gains is widely used is that the monetary amount in question is easy to determine objectively and hard to fake - if a stock portfolio is sold for X, it is hard to argue it was worth something else and hard to argue that the seller has a portion of X available to be taken away.
From this point view, LVT is just a special case of a wealth tax. You argued reasonably convincingly that this particular version of wealth tax has many advantages. However, when it comes to the resiliency of assessment mechanism, LVT is worse than a general wealth tax as it takes one element of wealth which is much harder to value than other elements (e.g. liquid stocks), then takes a non directly observable and not even very well defined portion of that (unimproved land only) and then imposes an extremely high tax on that portion.
I appreciate this!
How do you factor in the fact that capital wealth is mobile and can easily hide itself in the caymans? That seems non directly observable and not even very well defined too.
I guess my thought on mass appraisal is -- do you think the land portion of each building is going to be really volatile? In the heart of downtown, the land share is going to vacillate wildly block to block for otherwise similar buildings?
Let's take this to basics as a scenario. There is a $100K property, we know that's the market value because that's what it sold for five minutes ago. It's got a building. It's got some land.
We have an upper and lower bound for both the building and the land, $0 and $100K. We can observe a lot of other properties in the area. Say we're in a residential neighborhood and there's five empty lots scattered about equally throughout the neighborhood, and a bunch of very similar houses on all the other 500 lots, and the lots are all of similar size. Say the empty lots all sold for $50K each, give or take a few $K (and they're all about the same size). In this scenario, idealized as it is, would you say we can be reasonably sure that the average land value here is $50K per lot, give or take some error margin?
I get its idealized, but I want to tease out if your objection is fundamental enough that we can't even trust assessment in this sort of scenario.
"Will trying result in disastrous effects, or will they be better than the status quo? Why?"
Because of the sunny optimism of "this will mean doing away with every single other tax in existence!" There is such a thing as "too good to be true" and that is what is clanging alarm bells for us sceptics.
Put your case as "this will mean a decrease in your property tax bill" and we could go for it. Put is as "no more taxes plus free money for everybody!" and no, just - no. Those kind of promises *never* work out.
Okay, so if we try this in a more marginal manner (say by collecting the same amount of modest property tax in an area, but shifting the tax off of buildings and onto land), and we see some good results, and you agree they're happening, and then we take another step (such as raising the LVT rate a bit, but far short of anything like what georgists ultimately want), and we see some more good results, and you agree they're happening, would you be convinced then?
I get it sounds too good to be true! That's why I'm trying to lean on the empirical side of things. If it works in theory it should work in practice and we should be able to detect it. Believe me, if it doesn't work I will be the first to abandon it.
Also, to be perfectly fair, in Part I *never* personally committed to "this will mean doing away with every single other tax in existence" and even provided many arguments for why that dream may never be possible. ATCOR seems promising but I will not believe it fully until I see it demonstrated in empirical practice.
Ultimately however miscommunications are the fault of the speaker and I apologize if I did not make my position clear enough.
Building on these points, especially the 2nd one:
(1) A proposed LVT set at 75% to 85% of assessed land rental income and 0% of assessed structure/improvements rental income obviously has a dramatic difference in tax rate between what's classified as land and what's classified as structure/improvements.
(2) The most common observed market transactions for high-value properties - both property sales and rentals - bundle those components (land and structure/improvements).
(3) There are both theoretical and practical questions about the distinction between land and structure/improvements in, for example, situations such as positive externality feedback loops between nearby development. (And developer sometimes internalizing positive externalities by building out a sizable planned community.) These have been discussed in the comments to all three parts.
Combine those points, and I agree that there will be absolutely massive political fights over any implementation details and quirks between what's considered "land" value/income and "structures/improvements" value/income.
I'm not convinced by the assertion that a large LVT is a non-deadweight tax.
I'll start with the assertion that investment is risk averse, any source of uncertainty about future costs or payoffs dissuades investment in potentially valuable improvements, and so any unncessary extra uncertainty is a deadweight cost on the economy.
Popular examples of such uncertainty creating a deadweight cost include an unreliable legal system, unclear political borders, unclear property rights, and unclear long-term tax perspective.
In that regard, someone considering to make a long-term investment in improvements (e.g. buildings) on some land - which, according to George, is something we definitely want to facilitate, will consider their long-term costs. Existing experience demonstrates that the willingness to make such improvements depends on the long-term control they have over the land, and this is one of key reasons why societies have considered it valuable for land to be owned by people using it, because e.g. a few centuries ago farming tenants were not motivated to improve the farmland but freeholders were. A system where people making improvements are certain to retain the value brought by these improvements facilitates making these improvements, so the best case for that is people building improvements on the land that they fully own, and in the long run historically this has had a big difference in productivity of land (although, historically, this has mostly been about farmland or pastures, perhaps the modern case where 95% of value is in urban land is different). Arguably this is one of the things that Georgism wants to improve by adding a disincentive for non-user landlords.
So for someone considering building (or investing in) some valuable improvements, the long-term certainty of land matters. If they have a short-term rental of that land, it is a strong discouragement to building improvements (since they can't move these improvements afterwards, and would be either forced to pay whatever rent is requrested up to the full economic value of the improvements themselves, or abandon them), and this discouragement IMHO would be a significant deadweight cost. Tenants in short-term rent conditions simply do not invest in proper improvements. If they have a long-term rental of land (e.g. in some jurisdictions 99 year leases are a thing), that's better, but then it depends on the expected *cost* of that rent - if the rent is fixed, then the effect on investment is similar to a perpetual ownership, but if the rent can be changed, then it's closer to a short-term rental. If we want to encourage effective investments in improvements of land, then we need the ability for would-be investors to obtain a fixed long-term cost/rent of land which is often achieved by outright ownership of the land.
And my argument about a large (e.g. rent-equivalent, Georgian) LVT is that it does add uncertainty to making improvements of the land, essentially being equivalent to a long-term rental with a short-term price renegotiation (since you're always be paying "market rent" for your land and you can't fix it), because the LVT can and will change significantly without your involvement - I mean, that's a core assertion of Georgism, that land prices are often significantly increased because of external factors. With a Georgian LVT, there is suddenly no option for someone to obtain a long-term certain cost of the land they would be using to build a very expensive buildint.
Georgian proponents have previously used an example in discussion of a hypothetical underdeveloped land plot with a single-story home next to a skyscraper, which is not being developed by building e.g. a 5-story building because the landowner is speculatively waiting for someone to buy the land to build another skyscraper, and the suggested effect is that a large LVT would motivate the owner to build a 5-story building to capture at least some of the potential value. My counterargument is that in a similar situation where both plots are still empty and the skyscraper is yet to be built (and thus the LVT is currently at a level where a single-story building makes sense), people would be discouraged to improve that land by building that single-story home, because if the neighbour builds that skyscraper, their LVT will rise to punitive rates essentially ensuring that a 5-story building will get built, and they will have to abandon or tear down that home, losing all their investment in the land improvements, and not gaining any benefit whatsoever from the increase in land use value (since all that increase of value is captured by the LVT), so the building of a skyscraper would cause them a significant cost, and the *potential* for a future skyscraper next to your house creates a significant extra cost/risk to building that house that is essentially a deadweight cost.
Essentially, every single improvement that might get later 'outclassed' by future land value increases requiring it to be replaced by a different, more intensive improvement carries that risk. You might have cheap land in a backwards town. If you build a large factory and large warehouses on that cheap land, there is a certain likelihood that the town will 'boom' (no matter if it's caused by you creating lots of jobs or not - Georgism and LVT doesn't measure that) and the then the land value all over the town will increase - including your own land, and you have the risk that you will suddenly have to pay a much larger LVT than before. That future risk is a real cost to consider today when deciding on building that factory/warehouses, and whenever that consideration causes someone to build less factories/warehouses, that turns out to a deadweight cost to society. One could argue that it's low, or perhaps outweighed by other benefits, but because of this argument I'm conviced that the deadweight costs of LVT are not zero.
"Georgian proponents have previously used an example in discussion of a hypothetical underdeveloped land plot with a single-story home next to a skyscraper, which is not being developed by building e.g. a 5-story building because the landowner is speculatively waiting for someone to buy the land to build another skyscraper, and the suggested effect is that a large LVT would motivate the owner to build a 5-story building to capture at least some of the potential value."
In that hypothetical situation, I think that the owner would do better to pay the punitive rate for not building a five-storey building for a while, since generally where skyscrapers start springing up next to single-storey homes, the land will be purchased to build another skyscraper eventually (and sooner rather than later). So if you anticipate that you can sell your plot of land for a million dollars, taking the hit is worth it.
There's actually an interesting thread here about building skyscrapers and tall buildings and the costs involved:
https://www.quora.com/Could-I-build-a-skyscraper-on-an-average-neighborhood-corner-lot-If-so-how-high
But the problem you anticipate happens if we build our single-storey houses on a plot of land outside the city, and then ten-fifty years later, expansion means that now the city wants/needs to build on that land. That's where LVT would be unfair, because I didn't anticipate that my pleasant villa would be gobbled up by the city and now you are telling me tear it down and build five-storey building or else you'll hit me with punitive taxes?
Wait, "So if you anticipate that you can sell your plot of land for a million dollars, taking the hit is worth it." is simply not true under Georgism - since noone would have the right to the land rent cash flow of that skyscraper, the land would not be sellable for a huge value, land rents would rise equally to the LVT, and the landowners would *not* be able to speculatively profit of the increase of the value of that land - the whole point of Georgism is to prevent that. The ability to buy a plot cheaply and sell it later for a huge amount is based solely on the ability to extract rent from that plot, which Georgian full LTV eliminates.
So I have the choice of paying estimated LVT on "the plot next door has a skyscraper on it so your plot could have a skyscraper on it so that's the taxable value" and hitting me for several thousand a year, and if I can't afford several thousand a year, selling my plot for peanuts to someone who can afford to build a skyscraper on it, because the land is not sellable for a huge value.
Why should I think Georgism is a good deal? I can't benefit from the potential value of the land either way and you are forcing me to give up my own property.
This is where the Georgian assumptions that it would elicit more building fall apart for me.
Any particular investment would create a fairly large level of uncertainty, as you point out. This increases the hurdle rate for any particular investment. Meanwhile, the cost of borrowing increases significantly as the collateral value of the land essentially goes to almost zero. The asset benefit of owning land goes away and switches from CapEx to OpEx. I struggle to see how you ever get a positive business case in this scenario.
This is a large and significant objection to LVTs and I think it's important that we hear a response from someone who believes in them.
I think a response could be an entire article, but stability could be done through long-term leases. The owner of the land could sell the land to the government, which would then provide a 19/49/99 year lease, and the user of the land agrees to pay the land rent at a fixed rate based on the current value, or a capitalized upfront cost. That way, you have the stability of knowing that for 19/49/99 years, the LVT will already have been paid or you'll know the payments ahead of time. The government receives the land and improvements at the end of the lease, and probably sells the property to someone who has an interest in maintaining the building. I'm sure there are other ways, this is just the one I've thought of before.
A very well thought out series of probing questions.
A couple of methodological points:
"The cost to build something isn't necessarily the same as what it would sell for in today's market. Therefore, this approach tends to overestimate building values and underestimate land values." Most things are worth more than their construction cost, or people wouldn't bother making them. Also, with buildings as with everything else, depreciation is an accounting simplification which bears little connection to the way value actually changes over time. To take an extreme case, if you depreciate a building over a 60 years, you conclude a 60 year old building is worth nothing. But in fact something like half of UK dwellings are over 60 years old, and those buildings clearly continue to have some value.
As was pointed out previously, it can't be right to apply the same capitalisation rate to land and buildings, when one is appreciating and the other depreciating. Also, your income approach looks at net income, which is right in theory but very difficult in practice. It's easy to find out the market rent for a property, but nobody other than the landlord (and often not even him) knows the expense rate. It's complicated by the fact property expenses are really lumpy.
A teardown property isn't a pure land sale: you should add back the cost of demolishing the existing building to establish the value of the vacant plot. I imagine that would be a simple adjustment.
The cost of assessing land values isn't the total cost of administering an LVT, since you also need to collect the tax. Most of the IRS's 0.36% operational costs will be collection, since they outsource the assessment to taxpayers (I think: that's what happens in the UK at least). In some sense you have an obvious remedy for non-payment of an LVT: you repossess the land. That ameliorates a potential problem with tracing the owner: you could just staple your tax demand to the front door and you don't really care who pays. But repossessing properties is expensive, so I think your total overhead may be quite a bit higher.
It seems obviously wrong to assume that two adjacent properties have "essentially identical" value due to location. The value of a plot fronting on Oxford Street will be much higher than the value of the plot to its rear.
An LVT would be like rates, and commercial property owners are constantly complaining about increases in rates, and I've seen businesses close down in my own town due to a combination of downturn in business while the rent and rates still have to be paid, often at increased value, so the owner simply can't make it work.
https://byrnewallace.com/news-and-recent-work/publications/commercial-rates-who-is-liable.html
"Commercial rates have their foundation in the relief of poverty legislation of the 1800's, but are now a tax levied by local authorities on commercial premises to fund services in their administrative areas and represent an important source of income for local government.
Early each year, local authorities "strike" the rate for their administrative area meaning that the annual multiplier is agreed at a meeting of councillors. This figure is then multiplied by the Rateable Valuation ("RV") of each property to determine the level of commercial rates payable in respect of each property in a given year. The RV is calculated periodically by the Commissioner for Valuations and published in the Valuations List. It is possible to appeal the valuation if the ratepayer believes that the RV is incorrect."
The value is in the land, not the building.
Georgism feels attractive and repelling to me for the same reason: it will introduce capitalism to landowners that could previously avoid it. Formally, "competition" might be more accurate than "capitalism", but capitalism has the right associations for me.
If you are currently a landowner, then you can do with your land whatever you want. If you want to make profits, you do that. If you want to use it for your own house, you can do that. If you are a do-gooder and you want to use your land to offer social housing with less-than-I-could-squeeze-out-of-you rent, or you want to grow a forest to fight climate change, you can do that.
With LVT, you can't do this anymore. You have to pay the hypothetical profits of optimal land usage. If this optimal usage is a skyscraper, then you have to pay the yearly income of a skyscraper (only the income of the land, not the building). You would still need to pay that hypothetical profit if you grow a forest on your land. This would ruin you in no time, so growing a forest is impossible.
This means that any landlord is exposed to the competition of using the land in the most profitable way. No room for slacking. No option to just use it for your own house, or for social housing.
Is this good or bad? It basically introduces capitalism/competition to a niche which was not exposed to capitalism so far. Capitalism has been very successful. It is extremely good at optimization and produces incredibly efficient solutions. Putting land to its optimal usage is a good thing.
On the other hand, capitalism has downsides, because it optimizes only for a single value, profit. This is not the only value that we care for. For example, unbounded capitalism caused severe collateral damage on human rights or on the environment. These can be held in check by regulations, but it requires a huge body of regulations and a strong state.
Likewise for LVT. If it goes unbounded, I can imagine a scenario where all forests in a country are cleared due to LVT (because agriculture is more efficient and CO2 is not yet part of the incentive system). Now, it is not impossible to avoid this. The state can decide that only forest is allowed in some regions. Then growing a forest there becomes possible. A well-designed carbon tax might also make it possible. But this requires explicit intervention, and the state might not be good at it.
I have said that landlords will be exposed to competition/capitalism, and lose the privilege to do whatever they want with the land, because their "grow forest" dream needs to compete with the "build skyscraper" option. But this is a similar situation of *non-landlords* right now. If you *don't* have land and want to grow a forest, then you need to *buy* the land first, and in this auction you have to compete with the skyscraper companies. It's not exactly the same because in the current situation you only need to win the competition once. (Which is sometimes possible by saving for a long time, but it's hard. Ask any millenial.) With LVT, you need to win the competition *every year*. Here you can't compensate by savings or anything. If you are less efficient, you are out.
This doesn't sound like a pleasant world. On the other hand, capitalism also didn't sound nice (and wasn't) to workers in the 19th century, and still turned out pretty good after all. But only after a long time of misery. If something like that would be the price for LVT, it might be too high.
Of course, I am a bit melodramatic. I have been assuming an LVT of 85% or 100% or whatever. An LVT of 20% would give a much milder competition and would have less impact. But on both sides: on the potential negative effects, but also on the positive side.
My personal conclusion would be that LVT seems pretty worthwhile in dense urban areas where we are desperate for efficiency. No wonder that the bay area twitter cloud likes Georgism, because a city like San Francisco is exactly the kind of place where the argument "but I want to use the land for my own family cottage" should lose to the overwhelming public desire for efficient land usage. But elsewhere, where the public interest is not overwhelming, we might want to live in a world where the first argument wins. I would be afraid that the side effects of a country-wide LVT could be huge and unexpected.
Yeah, I think Georgism is solving an old problem, not modern ones. For cities in 1901, Georgism is a great idea! Knock down those crumbling old abandoned buildings, make the land-holders put up something useful there rather than having weed-overgrown lots lying idle for speculation! Housing for the labourers who will get jobs in the factories that will spring up - because now the incentive is to be productive with the site - on those empty lots!
It's not 1901 anymore, we've decided industrial air pollution is bad and we want people to be able to breathe in cities, and nobody makes things on production lines anymore (that's been shifted to China etc.), now we have big office block skyscrapers moving money around by computer.
"My personal conclusion would be that LVT seems pretty worthwhile in dense urban areas where we are desperate for efficiency."
That's my opinion too. In an LVT world, you would still be able to grow forests, because that kind of commercial forestry operation of softwoods works on marginal lands, like hillsides, where there is nothing else you can really do with the land (apart from run sheep on it. Or erect telecoms masts). So Georgist productivity-maximisation would allow you to own acres of scrubland and grow spruce for timber on it.
Towns and cities, though? Well, do you really need all those parks? Such a waste of prime real estate! So retrograde!
https://www.almanacnews.com/news/2021/08/31/menlo-park-voter-ban-on-building-housing-at-city-parks-proposed
But this is something can politics can decide upon. Politics can just decide that this area is a park, and no building or commercial activities allowed on it. Then the land value is zero, and you pay zero taxes.
My concern is just that it requires effort and attention to make these rules. But in big cities this is not a problem. There is city planning and detailed zoning laws anyway.
Those city planners and zoning laws are captured by special interests today. Why are Georgians less likely to be captured by special interests?
I don't agree for my own city, but that probably depends on the city. But isn't this beside the point? I don't see that city parks would be more likely to vanish in a Georgian system than in the current system.
You believe that zoning laws and approvals are currently optimized for the public interest and not captured by special interests at all?
And I don't believe that point is that parks would disappear - but once you have created a process to exempt a park, the school will want an exemption, then the child care facility, then the parking lot because it benefits everyone after all....
the original georgist argument is that a) it's not that hard to privately assess land values and compare to find corruption b) it's cheaper to root out corruption from land tax assessors than from the web of bureaucracies we have now
IMO that's not particularly compelling anymore since gov has grown so much already and is unlikely to be 'simplified' but it's worth aiming towards. there are some democratic innovations that could be helpful in combatting corruption, like sortition.
for zoning we're pretty doomed as long as we constantly have local control where voters benefiting from restrictive zoning can by definition outvote the people they're harming - everyone who wants to move to a place but can't. japan solves this by (mostly) having national rules for zoning.
The argument is that land is a scarce commodity, thus value can be artificially inflated by speculators holding on to it instead of using it productively by building more housing.
I do not see how you can argue that in order to have cheaper rents, we need more housing, so the parking lot which is a quarter-acre in size must be build up with an apartment block, but several hundred acres of space in a desirable location must remain pristine because - rich people like riding their horses on the stable paths?
In principle I agree with that. But it's not really a dichotomy, is it? There are a lot of parking spaces in many cities, and they are taking up a lot of space. That doesn't justify being inefficient elsewhere, it just means that you have several types of inefficient city space usage, and you should tackle all of them.
Also, it's not only rich people who block city development. In 2014, there was a public vote in Berlin, forced onto the city government by a petition. The result: The Tempelhof field, 380 hectare (1000 acres) of unused space in perfect position in Berlin will not be used for housing and buildings, but rather remains a field. The area became available because the old in-city airport was closed and replaced by a new one. (You may have heard some stories. In 2014, people thought that the new one would open soon. They were wrong.)
But I agree that such places should be used more efficiently if there is no overwhelming public interest to leave them open. Like for areas which are not generally accessible. If they are in private property, an LVT might solve this problem.
Donald Shoup's 'The High Cost of Free Parking' is basically the modern incremental georgists' bible- he'd support a 'land value tax' on parking in the form of meters that vary the market price throughout the day, with all revenue set aside in a specific fund that can only be used on public improvements. this seems to have worked in pasadena, where he based his case study.
Pollution lowers land values, so that would not be desirable.
Land is still important, as evidenced by the first post. We',re moving money around by computer, but location is still important.
https://www.forbes.com/forbes/2010/0927/outfront-netscape-jim-barksdale-daniel-spivey-wall-street-speed-war.html?sh=3f68f27741ad
I see dilapidated houses on €500k+ plots all the time around where I live. I think a land-value tax would be likely to induce the owners (presumably feuding heirs) of many of those plots to put them to more productive use. So, from my perspective, it would solve a modern problem.
> then you have to pay the yearly income of a skyscraper (only the income of the land, not the building).
You have to pay the return on the land-value of that, not all the income of a skyscraper.
The Empire State Building has a footprint of just under 2 acres, if I did my math right. And this source (sketchy, but I googleable) https://www.6sqft.com/study-shows-huge-disparity-in-u-s-urban-land-value-with-nyc-making-up-10 shows that the most expensive land in NYC is $126 million per acre. So assuming the ESB is at the most expensive land, it has a land value of about $250 million. It would have to pay about $13 million per year in LVT taxes.
That's a lot of money, but it's nothing like the profit of the ESB. This Quora piece https://www.quora.com/How-much-would-the-Empire-State-Building-sell-for-today says the Operating Income is $160 million.
At the other extreme, the LVT tax on my house would be about a tenth of the rent on it.
It's not "build a skyscraper or else go bankrupt." There's a lot of room for not-perfectly-optimal builds.
I now wonder what the LVT of NY Central Park will be
I just scanned through and I spotted
> machine learning
No, just no. No.
Machine learning is a good fit for tasks where you occasionally classify turtle as a dog and systematic classifying groups of people as gorillas is not a problem. (both are actual problems)
Or where existing classification is not working at all or terrible and anything would help.
Just no for solutions that would end in cases like "algorithms told us that you should pay 10 billion in taxes, noone knows why, sucks to be you".
Machine learning has no place here at all.
Yes, we will be a slave to the machine learning algorithm and no further evaluation or adjustment would be allowed.
If the algorithm and the data set are open source this is the opposite of true.
> open source
this does not imply at all that
> no further evaluation or adjustment would be allowed.
is not true.
There is plenty of open source projects where no external contributions are accepted.
> slave to the machine learning algorithm
is also not negated at all by "open source"
In a democratic society if you do not like your local assessor, you can vote them out. And if they are appointed, you can vote out your local commissioner who appoints them. In my local area both of these offices won by extremely small voting margins.
My point is to say that if the valuation system is transparent and done with software that anyone can use, anyone can audit, anyone can scrutinize, with open data that anyone can reproduce, then any educated private citizen can perform their own audit and get loud about it and through the democratic process push for change.
In a dictatorship where the government does whatever they want of course you have no recourse but that is not the society most of us live in.
This is incredibly naive - there is almost no participation in local politics and is almost exclusively the domain of the powerful and well connected.
Sounds like something that a motivated group of people who want to be the change they want to see in the world could change by their participation. Is your position that we are resigned to never being able to change government at any level through organizing and so we shouldn't even try?
> anyone can audit, anyone can scrutinize, with open data that anyone can reproduce, then any educated private citizen can perform their own audit
Note that barrier is quite high: only programmers will be able to do such audit.
It is not something doable by random educated person, it is doable by person specializing in some specific job.
And even if it would be fully open (what would be welcome but unlikely given standards) then
> we will be a slave to the machine learning algorithm
would still be true. Making it auditable is not changing that. I have seen enough bugs in software to dislike idea of fully automated system assigning potentially life-destroying taxes.
In addition to high barriers on technical knowledge it also requires high domain knowledge. Any machine learning is going to be very sensitive to the assumptions made, which are not always transparent.
That being said, I doubt that precisely calculating land value is the largest obstacle.
Have any experience with machine learning? I do. In practice it’s a generic term for like 50 vastly different numerical models, some of which have been around for 50 years and have nothing to do with, say, computer vision. If you have a problem with a specific method, please articulate its deficiencies.
My experience is very limited, but as far I have seen automatic processing named "machine learning" "AI" etc are extremely hard to debug, analyze and get info why this specific outcome was achieved.
One gets bundles of parameters or relies on extremely simplifying assumptions.
For example
> Here, we enforce the assumption that if two properties are right next to each other, then the value due to location is going to be essentially identical.
is extremely flawed - there are dramatic effects where plots just next to each other may have drastically different values.
It is noted that this assumptions are not actually true
> The big assumption here is that land values change smoothly and do not change suddenly across very short distances. There are, in fact, locations with sharp jumps in value (any town with an "other side of the tracks," for instance). But for cases where we know a priori that land values change smoothly, this method is appropriate.
but it seems in general ignored.
> but as far I have seen automatic processing named "machine learning" "AI" etc are extremely hard to debug, analyze and get info why this specific outcome was achieved.
This is only true with some models! Many are quite auditable and can be scrutinized and questioned.
> is extremely flawed - there are dramatic effects where plots just next to each other may have drastically different values.
I provided a variety of methods with pros and cons, not endorsing any single one as a single bullet. The point is that we can continue to research and get better at this by making guesses and then comparing them against actual market values.
I have no great experience in this field but any actually usable software, algorithm or idea must abandon assumptions like
> land values change smoothly and do not change suddenly across very short distances
before having chance to be actually usable.
This assumption is dramatically untrue and would wreck any actual deployment of massive land value taxes so is not helpful in georgification of tax system.
And mentioning it as potentially relevant makes me suspect about other claims. Are other claims are also as far away from actual real-world-situation as software ideas here?
So the current trend is towards deep learning, which is basically neural networks with many layers instead of the conventional single hidden layer. Even older neural networks suffered from exactly the problem lunar suggested, in that individual decisions cannot easily be explained since the individual nodes in the hidden layer do not have human-readable labels attached to them. With deep learning this problem continues to exist, so if a government goes with the current trend, lunar is correct that there would be no possibility of a satisfying explanation for an individual homeowner that wants to know why their LVT is higher than they can afford.
More generally, many forms of machine learning are very sensitive to the particular data sets used (see all the recent work in bias resulting from data sets based on people making e.g. biased hiring decisions). Machine learning can definitely be a very powerful tool here, but we shouldn't ignore the costs resulting from the explainability problem.
I agree. There are other models that are more explainable that do not rely on the deep learning paradigm and are able to give you the individual contribution of various factors. Are there any specific models you would suggest I look into researching?
Furthermore, I am interested in doing a study on mass appraisal methods, including machine learning models and non machine learning models. Would you be willing to specify some evaluation criteria vis-a-vis explainability that you would like to score the various methods on?
> Would you be willing to specify some evaluation criteria vis-a-vis explainability that you would like to score the various methods on?
Given outcome should be based on clear parameters.
No parameters in 1626-dimensional space with opaque meaning (what disqualifies big part of machine learning, if not all of that - though I guess that it depends what one calls machine learning, I have seen calculating averages qualified as machine learning).
For example iLVM development model seems acceptable on that consideration, while some black box machine learning model for me is not acceptable at all.
It's a lovely theory. It's a beautiful, shiny, gleaming theory that promises infinite money to the local and national governments and infinite tax cuts to we the people, plus the bonus of "the rents charged will go down because Magic Pixie Dust - that is, by the power of GEORGE, landlords won't hike up your rents to cover having to pay the LVT and they won't hike up the rent to compensate for having to pay twice the old going rate for the land, since Georgism assets land is always undervalued; no, because the cost of the buildings and improvements are separate from the cost of the land, the value of the buildings will go down and the value of the land will go up, and thus the rent for the less-valuable building will consequently decrease!"
Spherical Cow Tenancies, in other words. No landlords like this in the real world!
https://www.youtube.com/watch?v=XYa_YG4fPE0
I am in complete agreement that this needs to be tried out in practice and not theory. Some city run it on a test pilot basis for five years, and see what happens.
Because I think beautiful, shiny, gleaming theories turn out to be a bit rubbish in practice. But I would love to be proven wrong!
I think Georgist theory (1) was great for the late 19th/early 20th century, when cramming people into tenements was acceptable practice, and industrial development mean 'put up a factory or sweatshop on this lot' (2) works best in cities, so is going to be a problem for suburbs and agricultural land to assess and (3) will mitigate against single-family homes.
Now, I know a lot of people will say "Great!" for that last, because we've had debates on here about "what is so bad about bed-sits? relax the regulations about so much square footage per person, let people rent out less salubrious properties to single individuals at cheaper rents, this will help the housing squeeze" and "ban all single-family homes on lots where they could at least be putting up duplexes or multiple-unit residences".
Which in effect means "city living is for single people or childless couples" because when people have families, they need more room (hence moving out to suburbs) and conversely, what stops young urban couples from having kids is "we don't have enough room". Sharing a flat or house with other people means one bedroom of their own, they simply can't have a baby, much less two, unless they can afford to rent or buy a house of their own.
So the logic of the Georgist tax, which seems to have been the impetus for it at the start, is "make the most productive use of land" which in a city is "apartment buildings for multiple occupancies, or businesses and manufacturing units". The kind of group house living (for Scott, for example) would, in Georgist theory, be better replaced by an apartment block so everyone has their own individual unit and you can get a lot more people living on the same square footage of land. Ease the housing shortage, provide more units and thus reduce rents!
What a nice solution. So long as you're not planning to have kids. Because the reductio ad absurdum case is that the maximisation of productive use means smaller units for each tenant so you can fit more in. After all, if a block of fifty flats is good sense to provide more housing, a block of eighty flats is even better! And since land is the limiting factor, as we have all agreed, to fit more in on the same land, they have to be smaller. Tenements were the most Georgist-efficient properties, it would seem.
And what about those wasteful suburbs? We want to combat sprawl, don't we? So again, no single-family houses where instead you can put up multiple-occupancy units on the same plots. I never thought I'd ever consider a semi-detached house a luxury item, but if you want some (wasteful extravagance!) bit of back garden or front lawn, then you better be rich enough to afford such unproductive luxury.
I really would like to see this tried out. If it works, great! But I think the proof of the pudding is in the eating, and this might be a tough morsel to chew in practice, where real people and unintended consequences are involved.
The system would seem to rely on a fairly substantial liberalization of zoning rules - otherwise you are punishing, through taxation, someone that isn't building because they are legally prevented from building.
Rather than change too many things at once I'd propose getting those rules liberalized and see if anyone still thinks there's a problem.
Yes, we hate pretty much all zoning. The desirable features of zoning can all be accomplished via market mechanisms and LVT, a Pigouvian taxes/subsidies.
Rent not being passed on isn't magical. Coincidentally people often describe things they don't understand as magic.
"being pass on" is a nonsensical concept. Rental contract prices are a function of supply and demand. The only concept worth discussing is how much a change in policy is going to effect supply or demand - the rest is guesswork.
There is a lot of over-confidence that LVT is going to increase supply without carefully considering how the changes in tax policy actually effect investment decisions.
Mostly we look at empirical data that shows even partial shifts towards LVT has increased development and lowered housing costs.
I'm being asked to accept that every square inch of land in the USA, including rattlesnake-infested barren desert, is worth umpteen billions and so by a wave of economic wand, putting in a Georgist system will do away with income tax and give free money to us all, every man-jack of us.
Pardon me if I think that sounds like fairy godmother promises.
This isn't at all what's being suggested. In fact, the rattlesnake infested barren desert is worthless and wouldn't likely be taxed at all.
But urban land is very expensive and is likely significantly undertaxed.
Georgists can sometimes get too utopian but I think we try to do a good job of saying "theoretically and empirically we know these are the trends that Georgism will achieve and then here is what theoretically that might achieve but we aren't really sure because we don't have empirical data, but let's go as far as we can and when we've gone that far we'll see what else needs to be done."
I've found you to frequently have thoughtful comments and I sympathize with your position. What evidence -- even if it never arrives -- could possibly convince you?
I'm very doubtful because all the shiny promises of before about how "this thing will mean prices will be so low as to be zero!" have never come out that way. We were all supposed to be working 20 hour work weeks with tons of money and tons of leisure in this the 21st century, and you tell me if that happened.
I'd like to see this tried on a small scale before we get any big shiny promises of "no more taxes ever and everyone will make more money by developing the land they currently sit their backsides on!" I think putting it into practice will show a *lot* of lumps in the gravy.
I think we will find a lot of warts pop in practice as well! I'd just like to see what sort of results could possibly happen that would convince you that hey, maybe this actually does work. If it can be done, it should be demonstrable. If it can't be done, it should not be demonstrable. And if it can't be demonstrated and the evidence is solidly against it in real life, well I'll find other ways to spend my time rather than continue being a Georgist.
Btw, the translation of "Richtwert" is literally "orientation value", or "guideline value". I.e., it is a guideline without direct legal consequences. ("Richtung" = "orientation").
Boden = land (also "floor" or "ground").
Bodenrichtwert = orientation value for (the price of) land.
The Bodenrichtwert is meant as a service that can be helpful when you want to sell/buy land.
Thank you! I was poking in the dark with google translate and my one semester of German.
This all makes some sense for cities where most land is not owner-occupied, and it helps explain the existence of a wealthy land-owner class in New York. However, I would have liked to see some discussion of the impact on typical homeowners in suburban America. If the American dream is (was?) to own your own home, with 30 years of mortgage payments and that home’s rising value being your best (or perhaps only) investment, then Georgism threatens the current home-owning middle class with a loss of their retirement savings.
I suppose this is under the out-of-scope heading of “Transitional Politics”.
Well, if you replace income tax with a land rent tax, or use the land rent tax to fund a citizen's dividend, then the benefit to the middle class is that they keep a lot more income. For those who no longer have much income, the tax could always be deferred until sale of property/disposal of their estate.
On top of keeping more of their income, it also reduces the cost of land, and should result in more housing being built. I didn't see any papers cited by Lars that demonstrate this empirically, but theoretically it makes sense. And more housing of course means downward pressure on prices for all kinds of housing, including suburban homes.
I do think that the trend for the past 80 years (really since the end of WW2) for housing to be seen as a means of investment is terrible both for society as a whole and for individuals. A few individuals in high-demand areas benefit when the city improves, but a lot of individuals (especially in rural counties) are tied to toxic assets when prospects in their area go bad. Housing as an investment having negative consequences for general society only requires 2008 as an explanation.
> Unfortunately, the Russian authorities went with Harvard Professor Jeffrey Sachs' "shock therapy" instead, and the rest is history, as anyone who lived through the post-Soviet chaos can tell you.
Post hoc ergo propter hoc.
What's the evidence that the collapse of Russia was any of
1) the lack of LVT,
2) related to the orthogonal policy of getting rid of price controls rapidly
3) not related to the massive amounts of pre-existing corruption?
Would you like to see some sources specifically on analysis of the consequences of Jeff Sachs’ policy proposals in Russia?
I would.
I will try to put some together for a future follow-up then!
Maybe Jeffrey Sachs sucks and his ideas suck.
But that was about getting rid of price controls, not "opposite of LVT", whatever that would be.
And even then, reversed stupidity is not intelligence.
I found this interesting rebuttal to criticism of Sachs' policies by Sachs himself:
https://www.jeffsachs.org/newspaper-articles/3f7lt77637rfe4l9yrd9jrdl9yfaz5
Sachs blames the US and IMF.
My main point was about natural resources, so to be fair, let's see what Sachs himself had to say:
> Nor did the government raise revenues by selling its valuable natural resources; instead they gave them away.
I think it would be a mistake to sell off the natural resources (similar to what Ebeling suggested in Part I for the US) and that they should rather adopt a system more like Norway's, which has been massively and provably successful. In any case it seems like Russia did even worse than selling them off.
I think a useful case study might be to look at many different post-Soviet economies and see what different policies they took, such as in Estonia, which allegedly has implemented LVT, but which I have not yet studied.
Does anyone have thoughts on what impact LVT would have on open spaces? There are large tracts of private open land currently undeveloped. Landowners have such low taxes on this property that they are often satisfied using it for hunting and fishing, or just letting it be, using the deed as a store of value. The land does, however, have significant LVT if cleared and used for agriculture or building. This is not done today because of the activation costs and risks associated with clearing and permitting, but with a high % LVT, the owners would be forced to develop to pay the tax.
Lars seemed to be pleased about this resulting pressure to develop land according to its most efficient use, but as a lover of the natural world, I want to see our wild places protected from development.
Taxes wouldn't raise on land for which there is low demand.
It would encourage development in places that need development. It wouldn't incentivize paving over forests to build houses that are going to sit empty.
As far as suburban or urban adjacent natural spaces, a la Central Park, there are sort of two thoughts there. First, Central Park significantly increases the surround land values, so turning that into more buildings would likely lower surround land values, which wouldn't be desirable.
The other side is that you might have something that provides less land value than the cost to maintain it, like some natural land or an historic building or something. In this case, the community would have to decide if maintaining this is worth the cost, and maybe sometimes they'll decide that it is. But at least the cost and benefit will be clearly demonstrable to the community.
Makes sense. The public can still maintain open spaces that would be undesirable to be developed at the level of some community objective function, even if there would be a high marginal benefit to the developer, by purchasing the land from the private land holders or zoning to block development.
The public can maintain open spaces, but private individuals will find it cripplingly expensive.
We also advocate potentially for things called Pigouvian Subsidies, which would essentially be funds that provide landowners with a subsidy for doing things to their land that have been deemed in the public interest (and ultimately increase land values by at least as much as the pigouvian subsidy pays out, most likely).
It would not be desirable for Central Park to be replaced by condos, but an LVT would insist the owners pay the rent of condos, not of parkland, if Central Park was privately owned. If the community gets to decide that some people don't get to pay taxes because the community likes them then you don't have a tax system so much as a set of special cases.
The community would have a strong incentive to prevent things that reduce the aggregate land value of the community. How exactly you accomplish that can be up for debate.
As far as who pays for it, the community can easily pay for it FROM rents, since the value it provides is capitalized in the rent.
That's the "Henry George Theorem" posited by Joseph Stiglitz. Publicly funded things ought to capitalize in land rents, and therefore you can sort of evaluate the effectiveness of public spending by whether it raised land values by at least as much as it cost.
https://www.bclplaw.com/en-US/insights/land-value-capture-in-london-radicalism-or-another-very-british-2.html
This is an example, where constructing the Jubilee Train Line cost 3.5b, but resulted in land value increases of 13bil.
Sorry, isn't this exactly backwards? The local residents have every incentive to lower their land values?
Only if the only thing they cared about was paying as little land value tax as possible. But since the land value tax is directly proportional to how desirable of a place it is to live, I doubt that would be the case.
Things that increase land values: schools, roads, trains, businesses, ports, airports, waste water and water infrastructure, power lines, internet cables, footpaths, nearness to people you like being around (e.g. family and friends), sports stadiums, concert halls, museums, parks, art galleries.
The entire reason land gets value is because people build desirable things around the land, and I don't think people mind paying some more dollars of tax to have a nice park or school set up near them. We already pay for it anyway, but a land rent tax that replaces other taxes would shift the incidence of the tax onto the people that (currently) disproportionately benefit from those desirable things: landowners.
Sure, but that's because under the current system, you're taxed on a very small percentage of the benefits provided to your property by improvements on other people's property. The Georgist theory is that value should be fully taxed. This creates a very different set of incentives.
One, anything that improves property values, but you don't personally use (to the extent that you value it as much as it increases your costs) is now a net loss for you (as you can't recapture that value on sale). So, if I have no children, I should (economically, not morally) oppose any school improvements or schools in my area. If I don't enjoy parks, I should oppose their continued existence.
Second, this may incentivize making sure your improvements either fuck over your neighbors, or at a minimum, don't benefit them. Because the assessment value for your parcel is going to depend (in part) on how the neighboring parcels are valued and because otherwise your neighbors are going to hate you, as you're directly driving up their taxes.
Frankly, it looks to me like for all its talk of superior morality this theory will incentivize the 'man as economic animal' model of development which is not one I support or believe can support any sort of society I care to be part of.
"First, Central Park significantly increases the surround land values, so turning that into more buildings would likely lower surround land values, which wouldn't be desirable."
Given that on the land which later became Central Park, there were already dwellings - "Following proposals for a large park in Manhattan during the 1840s, it was approved in 1853 to cover 778 acres (315 ha). In 1857, landscape architects Frederick Law Olmsted and Calvert Vaux won a design competition for the park with their "Greensward Plan". Construction began the same year; existing structures, including a majority-Black settlement named Seneca Village, were seized through eminent domain and razed" - then the argument over keeping Central Park as open land isn't very strong. Why not return it to its roots as housing?
And if the surrounding land values are increased by having Central Park a barren expanse, how is that different from artificially limiting housing construction to make one's property more valuable?
Well, there is some greenery to "productive" building ratio that is desirable. Maybe having one giant park is not the best way to achieve that, I don't know. But the point is that the character of the community should be some expression of the median desire for various factors like greenery, density, access to amenities, etc, etc.
Without an LVT, there is simply no way for those demand signals to have the right impact. Because as demand for a location goes up, the price of the land goes up, but it doesn't automatically turn that increased demand into increased production or services.
With an LVT, if you overdevelop an area and it doesn't have enough green space, or living is too dense, or whatever, land values will fall, because living there has become less desirable, and there is a demand signal to adjust the development of the area.
LVT would be so much more marketable if it’s proponents settled for something a bit less extreme - replacing property taxes with with LVT. It’s so easy to market: “we shouldn’t punish people for making improvements to their own property”. But now that the well is poisoned with talk of the government seizing all land, good luck ever getting an LVT in the US.
And then once LVT gets passed and implemented, then you can talk about adjusting the rates in future legislation.
We do settle for things less extreme. Essentially every serious Georgist is a gradualist and we're willing to be flexible to a great extent.
It's just important to understand the philosophical basis of Georgism and then as we go to advocate to political bodies, we tailor our message.
This is exactly what I support? And who ever said the government is going to seize all the land? I literally never brought this up.
Perhaps it’s unfair to characterize taxing 85% of land value as “seizing”, but the difference between the two seems small to me. Even talking about it as the end goal of a gradual process is politically problematic.
Practically speaking we’re talking about raising the property tax rate a few percent and removing taxes on buildings.
If that's the idea, then I don't see how it fits with claims about a Georgian LVT replacing most or all other taxes in the U.S.
In 2019, U.S. total government expenditures were ~$7.3 trillion. Total receipts were ~$5.9 trillion, and net borrowing was ~$1.4 trillion. Those figures are consolidated, netting transfers between levels of governments (e.g., federal to state and state to local). Details are on pages 69-72 at https://apps.bea.gov/national/pdf/SNTables.pdf
This BEA report also shows total state and local property tax receipts of ~$600 billion.
So if the end goal is largely to fund government with LVT, then we're talking about *both* (1) changing the structure of property taxes to exclude structures/improvements and (2) increasing total property tax receipts (the LVT) by roughly an order of magnitude.
Did you read part 1?
Yes.
Summarizing it as raising property taxes "a few percent" (of value) understates the magnitude of the change, in my opinion.
Perhaps I should instead have stated it as "the (maximalist) idea is still talking about fundamentally changing a tax system that collects ~30% of GDP by replacing it with a modified version of a tax that currently collects ~3% of GDP".
One can talk about gradual phase-in, etc., but the end point is still a massive change.
If you get all (or 85%) of the return on a property, you have taken that property, regardless of who has their name on a deed somewhere. Part of the idea as mentioned in previous posts is that this drives the price of land down to near zero. This happens because while the land still has value, the "owner" of that land isn't the one who benefits from that value, the government does.
I agree that in the eventual steady state this creates a nice way to own a building while effectively just renting the land under it, but we shouldn't pretend that the transition doesn't involve losing any meaningful ownership of that land.
I certainly don't pretend the transition doesn't involve pain. Would you be interested in a follow up that goes deep into every aspect of political practicality and transition? Spoiler alert: I'm not pre-committed to any particular conclusion given that I observe we don't currently live under a Fully Automated Luxury Space Georgist regime, even though the philosophy has been available for over 100 years.
Very much appreciate the exposure to something I hadn’t seen before. There are 2 things I’d like to see in follow ups. First, a potential expansion with respect to what a lot of people see as a bigger problem than land, that is virtual property. For example, even though Facebook created the “land” of Facebook, the value is brought by all the people being there, like a city. Does Georgism have anything to say about that?
Second, I would like to see the public choice critique; what happens when actual people are executing this? What are their incentives and how does that have to be accounted for in the plan?
Most of us have opinions on digital land and believe it does share many of the same properties, but its often used as a red herring to imply the digital economy has overwhelmingly replaced the relevance of land, which isn't true.
Georgism has a lot to say about digital land, IP, monopoly in general, etc. It actually figures into my day job a lot as I work in the game industry as an analyst.
I can write about public choice stuff too, that'll have to wait for a future piece.
Thanks for this series. I am definitely more Georgist than I was a few weeks ago (mostly because I've only ever heard arguments against Georgism).
I also dig the Kabbalistic implications of George - Geo, a common English prefix meaning earth. Orge is French for barley - one of the very first grains ever cultivated by humanity. Note that in his name, the symbol for earth comes immediately before the symbol for wealth cultivated by man. These roots share a letter between them, this is also not an accident - it symbolizes that land and wealth are inextricably linked. My interpretation of the name George: Land is a necessary antecedent for wealth, which emerges from human labour upon it.
George was the perfect man to put forth the theory that all wealth comes from human labour being applied to the earth.
Home-Ruler of house Land-Labor, first of his name (known to his friends as "Henry George")
If you'd like, you can also read this excellent PhD thesis on the history of the Georgist movement, which was published at Georgetown University:
https://repository.library.georgetown.edu/bitstream/handle/10822/1029879/England_georgetown_0076D_13095.pdf?sequence=1&isAllowed=y
I think my biggest conceptual / ethical / moral issue with Georgism is that it seems to conflate land value with rental income.
If I buy a house on the fringes of town on the cheap, and then a bunch of other people move in, build amenities, and create jobs, my lands gets more valuable and my quality of life may go up through no *effort* of my own. Unfortunately for me, the government doesn't accept taxes denominated in quality of life -- they demand money. But I can't monetize the increased land value unless I sell it or rent it to someone else, so I may very well be saddled with a tax burden that I can't pay through no *fault* of my own. How is that fair?
This is the problem with gentrification in a nutshell. I do *not* want to prevent people from moving to and improving a new area, but also don't want to penalize the people who are already there. Both traditional property taxes and LVT seem to do just that.
That's just the unfortunate reality of life. As long as the population is growing there is going to increased demand for location. You have to figure out how has a right to that location and "whoever got there first" doesn't seem any more fair than periodically assessing who is going to use that piece of land to provide the most value to the community.
For what it's worth, after a transition period, I think you'd see pretty strong stability and a focus on upzoning, rather than suburban sprawl, meaning that the character of rural or suburban land would be unlikely to change rapidly.
This simply is handwaving away the huge deadweight loss created by uncertainty and moving. Its similar to the property tax proposal where you publicly declare your property's value and anyone can buy it from you for that + $1. Then you take your money and buy a neighbor's house, and he buys another neighbors house, etc. Until most of the town has moved in a sort of moving cascade which has inevitably cost each person moving thousands or tens of thousands of dollars in transaction costs.
The Georgist rebuttal, as I understand it: The value of the land is a common good. Just because you were there first does not entitle you to the wealth generated by your neighbours. As you say, you accumulate these benefits through no effort of your own. The same way that a landlord extracts wealth and directly monetizes it (as rent) you extract the wealth of living that community as Wealth - things you value that are the result of human labour on the land. If you do not value the wealth of that community as much as the free market does, you will inevitably sell your land and move out. This isn't a bug, it's a feature!
My intuitions don't love this conclusion, but we should compare it to our current system instead. Gentrification happens regardless of the existence of an LVT or Property tax. In a free market with no LVT, some big buyer will inevitably offer you (and most individual landowners) some stupid amount of money, and you will be happy to move to a cheaper area and cash in the value of the land which you did not earn. They then bid eachother up and take out big loans and now they have to pay those loans and suddenly The Rent Is Too Damn High. This also feels unfair, but feels less shitty as the homeowner because at least you get a big pile of cash.
I think an LVT is better than our current system. I'm on board with the earlier post - it's the least bad tax. Possibly some relief for individuals who live on their own land to help me deal with the ick factor of being 'forced out' by taxes? I don't love that either since it's not based on any principle I can point to. Thoughts?
I posit that possession is 9/10ths off the law* for a reason - because dispossessing someone is actively harmful, and that strikes most people as fundamentally unfair absent some compelling reason. Also, the first person to possess something usually has to put forth more effort or take on more risk than the people who come after, and I think most people feel like that deserves some extra reward. Exclusion, on the other hand, seems more passive, even if it can theoretically be backed up with force.
Saying “that’s just the unfortunate reality” ignores the fact that imposing an LVT (or any wealth tax) is an active policy decision with a predictable, potential effect of dispossessing low-income people. It doesn’t sit well with me, and I think a lot of people will find it really unjust.
* IANAL and I don’t know if possession is literally 9/10ths off the law. But I think a lot of people think it ought to be.
Perhaps the very first person took on more risk (and there some prevision in this in Georgism for a sort "land patent" system where someone who stakes out a new claim isn't fully taxed since there is real labor and work in turning existent land into something usable for production), but after that, not really.
They just lived in their house, it appreciated, and then they made sure the next generation started with a massive aggregate debt as a transfer of wealth from young to old.
"so I may very well be saddled with a tax burden that I can't pay through no *fault* of my own. How is that fair?
This is the problem with gentrification in a nutshell."
This already happens to all the renters, except it isn't a tax burden that they can't pay but a rent burden. Renters in gentrifying areas are forced to move out through no fault of their own.
> Pretty much everybody agrees on the basic algebraic formula for deriving land value:
> Total Value = Land Value + Improvements Value
Only for a definition of land "that" is the full bundle of everything tied to the property's current use. Which includes zoning, air rights, easements, etc.
That's how you get things like the value per acre of a 1 acre lot being a lot more than that of a 1.5 acre lot, in an area with a 1 acre minimum lot size: They both get to only build one house. The value of being allowed to build massively outweighs the actual incremental value of more land, in areas where land value is very high.
But that dynamic's going to enable gaming the LVT. Buy a 3 acre lot, split it inefficiently into 1.5 acre lots, build only 2 rental homes, get a much lower tax than someone who did the efficient thing. While ultimately being able to still sell the whole 3 acre lot to someone trying to build condos later. Reenabling land-speculation, in exactly the same way as before (buy lot, make inefficient use of it, knowing the true revenue comes from a later sale).
Your tax wouldn't be lower by splitting the lots.
Depends on the method of assessment. The market value of the land with minimum lot sizes, today, largely depends on the number of properties that can be built on it. Splitting the lots in an inefficient manner would reduce the market value.
You can argue that the methods suggested in the post would not get the true market value, only an estimated $/acre based on the nearby properties, who did not do this.
But if that's what will happen, that means 1.5 acre lots that exist naturally will be estimated too high, forcing people to abandon them. No one will want to own such a lot, as you'd be paying 50% more yearly in taxes for the privilege of being allowed to build exactly as much housing.
This is something that I was thinking about as I was reading the series. Any assessment of land value should be independent of the parcel boundaries, right? Otherwise you run into issues where someone could increase or decrease the value of the land by parceling it in different ways.
I also think most Georgists would push for removing lot minimums along with zoning. Did lot minimums ever benefit anyone?
Lot minimums on your lot arguably benefit the owners of other lots, who are guaranteed less competition, and you in turn benefit from other people being restricted from building more housing that could compete with yours. It's basically a cartel arrangement, backed by government.
I should add that I enjoyed this series, I'm impressed by the amount of work you put into it, and I would like to see more. You convinced me that land is a big deal (though I didn't need much convincing to begin with), and that there are probably good-enough solutions out there to the challenge of assessment, at least in theory. I'm not sure how to feel about the ability of landlords to pass an LVT to tenants. The role of public choice in Georgist policy and responses to some of the philosophical objections might good topics for future posts.
Thanks!
Got any good sources for me to start looking into? I'm not an expert by any means and I rely a lot on finding people smarter than me and asking them a bunch of questions.
James Buchanan and Gordon Tullock are the fathers of public choice, but I’ve not read their papers. I’ve learned about this stuff from listening to EconTalk. Searching “Public Choice” at EconLib brings up a lot of stuff.
https://www.econlib.org/search/
I’ve never heard a public choice critique of Georgism specifically.
https://onlinelibrary.wiley.com/doi/10.1111/j.1536-7150.1998.tb03269.x
I don't have access to this myself, but it may be helpful.
"A city doesn't have a huge incentive to repeal restrictive zoning policies because it isn't hurting their tax base. According to Georgists, a city whose tax base is land value has well-aligned incentives."
I struggle with this argument. Right now, the general structure of property taxes in the U.S. is that they go to local government entities (school districts, cities, counties, etc.). And, because structures/improvements are also part of property tax valuation, there's a clear and easily explained link between new construction and increased local property tax revenue.
There are two problems with the statement.
a) If any part of the local tax base is built from sales tax or property tax it is clearly false. Building an extra-large building creates more tax revenue than a small building, yet many zoning laws force people to build small buildings. And more people = more sales tax revenue.
b) There is an assumption that politicians are revenue maximizers, which seems to be an unfounded assumption.
I have the same issue. And also the fact that if you implement Georgism first without zoning reform, then suddenly zoning reform suffers from a perverse incentive. Communities (ie. voters) are suddenly incentivized to minimize development to keep land rents low and so will strive to maintain highly restrictive zoning.
In our current system, people often oppose up-zoning even though they would financially benefit, simply for aesthetic reasons. Give people an actual financial reason to oppose zoning reform and it'll just never happen. Unless, you do it federally and bypass local city councils etc.
Unless private agreements on deed restrictions and restrictive covenants were explicitly banned, people could at least in theory re-create localized restrictive zoning through these contractual mechanisms.
Those are reasonably common today in large new residential developments. In some cases - e.g., HOA's with detailed architectural design standards - they're significantly stricter than plain vanilla zoning / land use rules.
I don't know if it's at all common for a neighborhood-sized group to add these to existing properties. I would think it's legal for anyone who wants to do so, but there could be a collective action issue getting everyone in a neighborhood to agree on adding them.
I have a concern that I freely acknowledge isn't particularly well-addressed in the current system, but I'm left to wonder about the implications a Georgist system would have.
In the face of significant wealth inequality like we have in the US today, without affordable housing guarantees, it seems to be generally more profitable to build a few large expensive homes rather than many small homes. The reason is that a sufficiently wealthy person will likely pay more than ten times as much as ten poor people for a house that takes up ten times as much land as ten smaller residences.
If we eliminate all taxes except LVT and then only tax based on the amount of land used up (in a linear fashion), I suspect developers in general will probably be more incentivized to hunt "whales" rather than build smaller affordable housing. In urban centers, without affordable housing requirements or some sort of super-linear (in terms of space/person) land tax, I imagine sooner or later everyone who isn't in the top 10% of incomes gets priced out of being able to live there. And this is not because there just _isn't enough space_ but because developers are incentivized to build residences for fewer, wealthier people.
Assuming we don't want the bottom 90% to have to commute into the city every day, how do we address this?
I recommend re-reading the articles. The suggestion is not to tax land linearly or by amount.
Its a % of the value of the land, which empirically follows an exponential increase into the city center. Something like this: https://twitter.com/CGUSAOfficial/status/1460672622153195524
I've previously seen an objection to Land Value Taxes that rural households (especially farmers) have a disproportionate amount of their wealth tied up in land, and shifting our tax system from mostly income tax to mostly LVT tax would be really bad for them. I don't remember whether this was raised as "and therefore LVT is bad" or as "and therefore LVT is not politically viable outside of cities". Is this a legitimate critique of Georgism?
It seems possible that rural land values are low enough that a LVT is actually not very impactful, even to rural households with a lot of land. Or if they're not currently low enough, they will be as LVT drives down the value.
Or, it seems possible that the Georgist response is that the LVT is intended to discourage people from holding land and not deriving much income from it, and so the incentive it creates for rural households to sell their land is a feature, not a bug.
Or, there's some other counterintuitive way in which a LVT is actually good for rural households and/or farmers, despite increasing their tax burden.
Or, there's some exemption that it makes sense to carve out for a LVT so that it doesn't enrage farmers, either to make it politically viable or to protect rural households and small farms.
This seems to me like a rediscovery of farm subsidies. In practice, farm land is insanely valuable to society, but farming itself is made trivial by modern technology. No matter the system, farmers are basically public employees not paid a market rate for their labor.
Its a Land Value Tax, not an Acreage Tax. Farm land isn't particularly valuable. "Farm land" is typically in the range of hundreds to maybe a few thousand dollars per acre, while 1 acre of NYC is worth 5 million. Since you pay a percentage of the value, it doesn't hurt you to own lots of farm land.
Besides, Bill Gates is the largest single owner of private farmland in the country. Farm land is typically held by private equity and then leased to small farmers, so ending that practice would help.
Additionally, a lot of suburban adjacent farm land is planted with low-density monocrops like soy beans and corn, which are largely not for human consumption, and they're used to make a small income while the land is held out of use and the land speculator waits for the urban/suburban area to expand. This is ecologically damaging and creates a fragile food supply. These practices are not good, but they're incentivized by not having a system that uses land effectively and taxing labor and capital, as these practices are labor and capital intensive. If you encourage efficient land use through the LVT, and remove taxes on labor and capital, then you'll see agriculture shift to more intense polyculture farming, which is more labor and capital intensive, but more land efficient and sustainable.
All around, LVT would result in a agricultural system that looks a lot different, but it not hurt farmers, except farmers that are actually just land speculators and mega-agrobusiness that makes all its money planting corn and soy beans.
I was hoping this article would be less about the practicality of running all the assessments and more about the theoretical hurdles in separating land value from improvement value in the first place.
Like, linear regression gives a list of factors that create property value, and you say that we can just sum up the boxes that correspond to land value. Which boxes are those? You mention proximity, but that's kind of a can of worms. If I own two adjacent lots, a house and a garden, then the garden gains value by being next to my home and the home gains value by being next to a garden, both are land value. If I combine them into one lot, all that value becomes improvement value. Are there any non-proximity based factors that count as land value?
A post on r/themotte mentions that pollution is a negative improvement, how do we deal with that?
I've read all four of your posts and I don't think I fully believe that land value is a coherent ontological category. I'm eager to be convinced though.
In other words, do the methods of assessment you mentioned here capture the ideas proposed by George himself? Or were his definitions incoherent, and the "Land Value" as defined by regression analysis is not properly called Land Value and instead captures something like "value of adjacent lots" which is beneficial to tax for unrelated reasons? Are all the land values you mention and measure in these four articles the same? If two Georgists argue over whether a feature should be included as land value or property value, is there a way to determine who is right?
My reaction when I saw the list of factors was "They've solved the Problem of Socialist Calculation. Woo-hoo! Red Plenty!" (Seriously, if they go for anything approaching 100% of land rent, they really will have to solve the PoSC somehow: the sale price of unimproved land would drop to near zero with such a tax, so you'd no longer have market prices as a reference point.)
Actually, if market prices of pure land drop to near zero, that's feedback that your assessments are very accurate! And we know the land income of those pure land parcels who have been driven to a near zero purchase price, it's whatever the current land tax you're collecting from them is.
The fact that the assessor will get a signal *if* he happens to succeed in his task helps a bit; unfortunately, it doesn't change the fact that he's blundering about in a fog at the start. If a parcel happens to change hands I suppose the sale price could be used as feedback to adjust the assessment, though at the risk of entering a house of mirrors: now one of the factors determining the sale price will be the parties' guesses about how much the assessment will change as a result of their own transaction.
You can just design the assessment method so each parcel’s sale only affects the nearby plots. Gets tricky when one person owns two nearby plots, but that situation is tricky for lots of other reasons already.
The philosophical definition of land value is nothing more and nothing less than what the land would sell for in the market if the improvements weren't there, in a world where there was no current land value tax applied. Basically what it would sell for if it was nothing but a parking lot.
All of the implementation methods are about trying to calculate that figure in a world of imperfect information. But it is a testable hypothesis in principle, even if you don't always get exactly the data points you want, you are making a kind of prediction about what properties will sell for under present market conditions.
I'm all ears for how we might get better at doing this in practice.
The complaint is not about the lack of perfect information. The complaint is that the concept of "land value" is ill defined.
If I build a gated community in the middle of nowhere and rent out all the houses i pay no LVT. All of the value is due to improvements I placed on the land.
If i then sell off the houses and all the shops suddenly all the value of the community is captured by the LVT.
No algorithm can solve this problem. It is inherent in the fuzziness of what counts as an "improvement"
I think we've arrived at a root difference of irreconcilable beliefs about epistemology. Sincerely, thanks for engaging with this and helping me to understand your position.
This is a really good case study. I think we should want the first owner who built the city to be allowed a profit from his work. But people who buy the houses shouldn’t.
So ostensibly the first owner pays no LVT, but the buyers do. But that doesn’t work, the buyers won’t pay full price because they know they’ll have to pay the LVT. So the guy who built the town can’t be compensated unless the home buyers are allowed to speculate on his production. Is that reconcilable? I want it to be, but have no idea how.
It's the same analogy as shares in a company. They didn't exist before the company was founded, but if you want viable capital markets to exist, you can't just say only the founders can gain. And capital markets serve really valuable functions, unlike the claim that they're just speculation, which they wouldn't be able to serve without the speculation. I was originally quite intrigued by the idea of an LVT, but after engaging with it more, I'm now of the opinion that land is intrinsically (almost) worthless, so an LVT would be significantly distortionary to incentives for innovation and development, because it assumes this to not be the case.
How good an analogy is that though? Share markets are useful to society because they give people a way to buy companies (or parts thereof) while having confidence that they're paying about the right price, and sellers benefit from having more confident buyers. But this is not a problem anyone buying a house has. Buyers know how much a house is worth to them already, they don't need speculation to figure out the value to them?
What do you mean by "full price" here? It seems obvious to me that they will be willing to pay more than the original buyer. They'll pay less than if there was no LVT, but never so little that the original owner didn't make a profit. In fact, the idea of LVT being based on lagging indicators rather than future-predicting ones strikes me as being no bad idea at all!
By full price I mean paying the town founder for the full value he created. The founder "should" be paid the full difference in land value between when he found the land and when he sells it. But then the people who buy it would have to recoup the price they paid, which they can't recoup if they're charged an LVT.
For example, if the founder buys space for 100 houses and only builds 50 houses (plus all the amenities of a town), with LVT the 50 empty lots should definitionally sell for $1. He makes a profit on the 50 homes, sure, but not on the 50 empty lots. But he added a lot of value even to the empty lots, so the money he loses to LVT seems unjust.
Oh okay I see now. But does that still track? The value comes from the other people living nearby, and the employers as well doesn't it? 50 Houses all of which empty and with no jobs nearby isn't as valuable as 50 neighbors and a couple of shops. It's not the original buyer alone who added this value? I can understand how it might still be desirable to subsidise this kind of town building though, I guess that's what the 'founder patents' some other people in the comments have referred to.
Of course this is reconcilable. Why would the developer sell the houses with land? The easy thing for him is to retain the land forever, possibly in a trust, and grant 999 year leases to homeowners. This is better for everyone (except for hapless Georgian taxmen.) It is a bit more difficult for an existing city with diffuse land ownership but with the cost tag of 10%+ of GDP annually I am sure people will find a way to merge ownership of city land back into a single entity if it makes land tax free.
I don’t think this solves the problem, just moves it. What is unimproved land?
So for empirics, I’d want a definition of pristine land. I think our idea is to bulldoze the plot, rip out all the grass, cover it in garbage, and then whatever that sells for is the unimproved price by definition.
If we agree to that definition, then I think there are some good examples of ways a
landlord could change the land value in practice, which makes dead-weight loss theoretically possible. I think George would explain these the same way as the “smashing Ming vases to sell as gravel at a loss” example from the book review (explaining why wages always flow from production): these can happen but by their nature they’d have to be minor edge cases. I would like to see a Georgist go through these edge cases and explain either why they fit into the theory or else why they can’t be widespread enough to matter.
Personally, I’m fully sold on the morality superiority of LVT. Land speculation has always struck me as wrong, for reasons George articulated well, and I think I even agree that it’s the least-worst tax in terms of deadweight. I’m less convinced of the more utopian claims, like that raising the LVT never has negative consequences or that it can end the correlation between progress and poverty.
Why is LVT always been taken as the standard and only method to achieve Georges goals (collect unearned income and prevent speculation)?
I can think of many cases in witch an LVT would cause harm. In my view this is because LVT builds on the land market value. A market value is not a real actual profit I can spent on something, it is just potential future profit. You could even say it is a speculation on its own. But George wanted to collect actual profits from land and stop speculation. This is a completely different thing, but people (only here?) always mix it up.
If there are alternative suggestions for how to achieve George's goals, I would be very interested to hear them. I'm new to Georgism, I'd heard about it in passing before but these articles are the first time I've come close to understanding what it's all about. .
I guess you could tax capital gains at 100% (less any improvements to buildings or other fixed assets)? The problem that people often bring up with that mode is that then people just choose not to sell and things lie unused and underused for longer, and that's inefficient and doesn't lead to more housing being built
I think the "adjacent lots" problem is soluble. The general idea is that an improvement affects LVT to the extent that it would change the price of an adjacent lot, based on how it affects the "quality of the neighborhood" rather than the improvement's direct selling price or revenue-generating potential. An individual improvement would have a much smaller effect on the LVT of the land it sits on than on a property tax, but not necessarily zero. You could imagine the effect on LVGT of an improvement spreading outward as a 2D Gaussian (to oversimplify). One could empirically estimate the effect on LVT at the site of the improvement, independent of the actual increase in selling price which would be much higher, by fitting such a parametric function to changes in nearby empty lot prices.
In an age of alchemistic, chimerical assets, it is salutary to be reminded that we are three dimensional beings living in a three dimensional world needing three dimensional assets to live our lives. That doesn't make me a Georgist, but it makes me happy. Thanks for all your hard work, Lars.
george did sortof coin the phrase 'spaceship earth' after all!
I wonder at what rate Land Value rents are already taxed (via a combination of Property Taxes and indirectly via Income Taxes and Capital Gains Taxes) and how that varies by jurisdiction and whether we can see effects from that. It sees like indirect taxes on Land Rents are pretty substantial or is there some reason to think of that differently.
I guess anit-Georgism would be expected to raise land values (certainly seems the case in CA with prop 13 which is basically the opposite of what Georgist's would recommend so that checks out).
A lot of it, but since its done via income and capital gains its falling first in the wrong place, so it carries with it DWL.
"If Georgism is true, and the only thing standing in the way is being able to pull off accurate assessments, then let's just get better at doing that. We're the species that split the atom and travelled to the moon. Surely we can handle this."
With respect, there's a difference. Atoms exist. The moon exists. The value of land which isn't actually unimproved does not exist in the same unequivocal sense. There isn't a 'true' objective split of property value (even conceding that the overall property might have an objective value, e.g. market value) into the sum of land vs improvements part. There isn't even necessarily a split we can arbitrarily choose that won't cause economic damage if used as a tax base.
The moral case for Georgist's policies seems fairly questionable in the United States at least. A 100% LVT (or close enough to it) seems roughly equivalent to the government owning the land (or at least the entire beneficial economic interest). But the governement did own almost all the land in the United States (especially out West)! And fairly recently too! It still owns huge amounts of land (a good place to experiment with Georgists policies? the feds don't seem to get a huge amount of economic value out of the 28% of the country they own). Nevada is >80% owned by the feds yet I bet something like 95+% of the land value is in that other ~15%. Nevada is pretty much all worthless desert so it seems like this should tell us something about where land value originates.
The capitalization argument would seem to run both ways. If the LVT is fully capitalized then it should be perfectly reasonable for the governement to sell that stream (by selling the land) much like a perpetual bond (a thing governements have sold) or lease it for extended periods of time (like regular bonds). And indeed the governement has sold off a lot of land, both for cash and other considerations. Is the argument that government got a bad deal and should get a do-over? A lot of that land was specifically given to incentivize / pay for infrastructure development to make the land more valuable (the railroads for instance were given alternating blocks of land as inducement to build the railroad with the governement keeping the other half and in that case it's pretty clear where the value came from, and it wasn't the government, if anything the government was the land rentier in that case). So do Georgist's support the government selling land? And if not, why not? Should policy instead focus on leasing? iirc much, though not all, of Singapore is public owned and leased for extended periods of time, like 99years and I think all the land in China is treated similarly. What do Georgist's think of that kind of situation? Is that Georgist? China doesn't seem immune to expensive property and certainly not to speculation...
Public land leases approximate Georgism, but obviously determining future pricing on a 99 year lease is essentially impossible, so its better to do more frequent valuations.
Singapore is probably the best example of a quasi-Georgist regime and they've been probably the biggest success story in regards to moving their population and country from poor/developing to modern/developed.
How does Georgism deal with restrictive covenants and other mechanisms that separate out various aspects of development rights from land? I guess this is somewhat similar to zoning, though privately mediated. I know there's a lot of land around where live, for instance, where various development rights have been separated from land ownership and sold off to various charitable organizations / trusts / foundations and as such the land can only be used for limited purposes (generally either 'nature', recreation or farming; sometimes allowing a very limited set of mostly pre-existing structures). Or the complicated NY air rights / setback / overhang rights. Would charitable organizations be taxed (prob. yes? though that's not going to be popular, for ex. most universities famously don't pay property taxes on their campuses, though in a few cases like Cambridge, MA the universities dominate the city so much and so reach the city has strong-armed them in to making 'voluntary contributions in lieu of taxes' or some such, though at ~85-100% LVT expect some fighting around this).
and so reach -> and are so rich (man I really want an edit button)
Why should someone, or just a handful of people, be able to decide what a certain piece of properties acceptable uses are in perpetuity?
I would hazard that the rights holders under such covenants would be considered to "own" that aspect of the land and be liable for the corresponding tax.
That would make sense, though not sure how charitable organizations would be treated (purist would say no differently, though that's as arguably true of other taxes they are often exempt from). Would certainly complicate assessments though, and I could see trying to game (or just financialize / separate out / slice and dice various degrees of land ownership in a vary high rate LVT system) adding to that.
I think the idea of gentrification driving up taxes for homeowners is a legitimate concern but can't that be solved by insurance? The homeowner pays premiums then if the land value increases by more than e.g. 5% per year, the insurer covers the difference for the next 5 years.
I shudder to think of the insurance rates for a potentially unbounded liability.
Plenty of things are unbounded. I could crash my car into a faberge egg showroom and the insurance would have to cover it.
In any case, the worst increases will be avoided as land appreciation will only be due to real improvements and not speculation.
You might want to check your insurance policy. They usually only cover a certain amount of property damage/medical bills/liability
There is an old, existing, fairly widespread, very well studied, example of a 100% land value tax.
Except, it isn't a tax - but the issues *as regard to assessment* are identical.
I'm thinking of the British (and elsewhere) concept of a 'ground lease' where a private party owns the land and receives rent based on 100% of the (frequently reassessed) value of the hypothetically bare land. Often the land-user (the ground lessee, and owner of the improvements) has the perpetual right to develop, trade, and use the land (subject to paying ground rents) - so this is EXACTLY the valuation split that Georgism envisions. (Different because the money goes to a private party, not 'society', so I limit the equivalence to the assessment problem.)
There is quite a bit of literature on this. I'm not a valuer/assessor, but I've had reason to dip into it a bit. My short impression: it's a real mess, there are no agreed on answers, and in any particular market something convention or other seems to get settled on. Lawsuits and assessment fights are commonplace; lawyers are happy. The trend in most places is to slowly move away from ground leases because of how difficult they can be. Indeed, if it comes to market, the land is often much more valuable to the ground lessee than anyone else since it offers him the chance to end the fights, extinguish the ground lease, and make the land + improvements package "normal" (and so much more valuable).
None of this matters much if your actual land value tax is at one or two percent so I would question the relevance to Georgism of empirical data that looks at such regimes. But when it approaches 100%, we do have experience of how well the assessment situation works. My skimming of the literature says: awfully. I may be completely wrong about that opinion, but, regardless the facts are out there in the 'ground lease' literature.
A tax on assessed values of 2-3% is a 100% Land Value Tax. A 100% Land Value Tax is a tax on the capitalized rate, since as Part 3 showed, rent is fully capitalized.
If that's the case, then the highest property tax states in the U.S. already have very high implied land value tax rates -
As a % of owner-occupied housing value, effective property tax rates range from ~1.5% (Ohio) to ~2.1% (New Jersey). Those property taxes aren't LVT's, so the effective rates are calculated as % of overall home market value (land + improvements). The aggregate amounts raised should be broadly similar, however, and probably even somewhat higher for New Jersey. https://taxfoundation.org/high-state-property-taxes-2021/
For commercial property taxes, the highest effective property tax rates range from ~2% (Nebraska) to ~3.2% (Connecticut). Again, these property taxes aren't LVT's, so the effective rates are calculated as % of overall property market value (land + improvements). So these should bring in *higher* total receipts than mentioned by Travis. https://ncchamber.com/dashboard/index/headache/effective-commercial-property-tax-rate/
I struggle to square (1) these property tax numbers, (2) the claim that a tax on assessed values of 2% to 3% represents 100% LVT, and (3) the calculations in Part I claiming that implied land rent is ~25% to ~33% of U.S. GDP.
No state (plus its local government subdivisions) is raising anything like 25% to 33% of its gross state product from property taxes. That has to be true because every state has some taxes other than property taxes, and state plus local tax receipts close to 25% of GDP (nationwide, they're about 10% of GDP).
I might have been a few percentage short, perhaps a full LVT is something like 3-5%.
Either way, the other comment stands.
Well, maybe. But you also have to, as Lars said, see if the assessments are any good. If the rate is 3% but the valuations are coming in at 10% of sale price, then its not a very good LVT.
At the moment i see kind of two versions of policies that get mixed up. Perhaps i misunderstood Georgism, or the term land value tax is misleading not only for me but also for many other commentators.
1) Georgism as i understood it from the original book review is about all rent (as profits from land) should go to the community and nobody should profit from only owning land. Private profits are totally OK if they are coming from the use of the land or from improvements/investments on the land. I will call this LPT for 'land profit tax'
2) Land value tax (LVT) implies a amount of money to pay per year calculated as a percentage of the current market value of the land. This is independent from what you actually currently do with the land, it only depends what somebody else is willing to pay so he could use the land. I will call this LVT from now.
This is a big difference. LPT is about factual received rent that George wanted to tax 100%, LVT is about is potential, not manifested value.
Let's make an example and to see as many aspects as possible lets assume I own 2 similar small houses in the same neighborhood on the edge of a small town. The town is not very attractive and there is no city around so the land value is quite low. In 'house A' I live with my family, 'house B' I lease to some tenants.
What is my profit from owning the land:
A: I live here, this gives me practical profits: paying less rent, not having to deal with a landlord, access to community infrastructure.
B: financial income: my tenant pays me, that is partly for the building(improvement), my service(work) and partly for the the land.
The idea of Georgism is that this profit should be taken from me by a tax to give it back to the community. So lets assume in this starting situation a LVT would equal these profits and be about the amount of current property tax.
Now what happens if there is a new disney world or a new giga factory build in town? Suddenly there are a lot of people coming in to work here and perhaps even a lot of tourists. So the prices of housing and the demand for land raises and so does the land value. Now i have basically four possibilities what to do:
1) I could just try to ignore all of this and live my live as if nothing happened.
2) I could choose to profit by raising the rent of my tenant. If he asks why my answer would be: "Well, because of demand and there are people that would pay that much, this is just the usual price today."
3) I could replace house B or both houses with a apartment blocks to feed the demand for housing and to earn even more. But this is only an option if I'm rich already or if I get a huge loan from the bank.
4) I could sell my house B for a multiple of the amount it was worth just years ago, making big financial profits.
How would these options play out under different tax rules?
In the system today all 4 options are no real problem. The property tax would rise a little, but i could pass it on to my tenants so nothing changes much in variant one.
With LVT in place somebody could build apartment blocks instead of my houses, this sets the market price and my LVT just quadruples. This makes options 1 and 2 basically impossible. I would be forced to build apartment blocks or sell my land to somebody who does. Of cause all my neighbors face the same problem until the apartment market is saturated. Than the apartment blocks are barely profitable any more, but LVT would still be too high to live in a single family home with a big garden.
Now imagine there is a LPT taking away exactly the actual profits i get from the land.
I could still decide for option 1, the practical profits stay the same. On one hand i could profit from better infrastructure and better job chances as the town grows. On the other i am annoyed by more traffic, have a longer way if I want to enjoy nature and I have a higher risk that some big building is blocking my view in the near future. So let's call it a net zero.
I could still raise the rent for my tenant, but i have no incentive to do so as the rise will completely be taxed away.
I could opt for 3), this increases my income from building and service, but the tax would also raise to eat exactly the land component my tenants pay.
If i sell a house, i can keep what the building is worth and what I payed for the land, but any increase in land value I would have to give to the tax office. This way, I get the same money I sell it sooner or later and speculation doesn't make any sense. If i don't get any income from managing the house(work) there is no financial incentive to sell or keep the house.
So my conclusion is that an LVT would enforce the most profitable use of any land, while LPT leaves me with all my freedom, just stopping me from getting unearned income and making speculation impossible.
Some say enforcing the best utilization of land is a good thing. I strongly disagree for several reasons:
- personal freedom and security are very important. Both get violated if you suddenly can't afford any more to live in the place you love and lived for many years because of reasons outside of your influence.
- the most profitable use of land is usually not the best for the local community.
- This would destroy all places that get their value in part because of 'inefficient' use of land. Imagine you have a area with many small houses and farms in a lovely landscape. This is discovered by tourists, so there is growing demand for hotels, restaurants and other tourist infrastructure, so the land value will rise. Now the small farmers go bankrupt and nobody can afford to have a private house because of the high LVT. Even families living here for generations are driven out. This would not only destroy the lives of many people, but also make the place less attractive for tourists, bringing everyone in trouble who invested in tourist infrastructure.
- LVT based on the possible values would make it impossible not to use any natural resource. Imagine oil is discovered on your farmland, than you have to pay LVT based on the profits possible extracting the oil. Nobody could ever afford not to extract it for whatever reason (you like farming, climate protection, leaving some oil for future generations).
I don't know how seriously or how tongue-in-cheek Adam B. means this, but in reply to an objection I raised:
"AdamB5 hr ago
> the rent for the skyscraper next door is $1,000,000 so the value of your land with one family home on it is also $1,000,000 in potential rent, pay up!" and I'm going "no, I can't afford that, I'm not getting $1,000,000 in rent!"
Then you must get a higher-paying job, or move somewhere cheaper. Society as a whole benefits.
AdamB5 hr ago
(living as the only tenant of such a desirable piece of land is a lavish luxury. it denies hundreds of others the right to live there at the market rate. why should you be entitled to such wealth? you did not create it. nor did you purchase it: the land was cheap when you purchased it, because the wealth had not been created yet.)"
So possibly some potential Georgists think 'personal freedom and security' are for the birds, not for humans. Sell up or be forced out, kulak!
I have seen this kind of thinking too. It would lead to a market totalitarianism dystopia.
But even if you ignore all feelings of people and look only on the economical side this is till a bad idea.
(I am not an actual Georgist, just an intrigued reader of this blog, so I may have everything wrong.)
It sounds like Georgism may only work to the extent that "the best for the local community" can be made "the most profitable use of land" by taxes and subsidies.
And yes, it sounds like "personal freedom [to never be forced to move once you've managed to purchase the place you live]" is sacrificed under Georgism, in favor of other societal goods (which are more evenly distributed than this freedom which only 2/3 can afford).
(I don't know much about Soviet communism, but from what I've heard it doesn't seem like an apt comparison. A Georgist government isn't in charge of what is done with the land; the owner still decides. The government only estimates how valuable the land's greatest purpose is, and if the owner chooses a lower-producing allocation, then they must pay society the difference out of their own pocket. The Georgist government doesn't appropriate labor or capital.)
(Also, Soviet communism doesn't seem to work, likely because goverments aren't good at choosing how to deploy land or labor or capital. It's possible that Georgism won't work because governments aren't good at assessing land value. Squarely addressing this question is the entire point of this post. What did you think of its claims?)
As far as i remember from the original book review the main idea of Georgism is to make profits impossible that originate from the sole possession of land without any personal contribution. As the worst form of this profit it has to prevent speculation with land.
LVT is just one idea to do this, and i agree it would have very bad consequences. So lets think what else could we do to stop land speculation.
I didn't read the whole thing, I read the first part and you are confused.
The sale price of a piece of land is its capitalized rent. So if I think I can make 10,000 dollars from a piece of land per year (it doesn't matter how, from a conceptual perspective it could just be a money tree that spits out 10k/yr) and that source is reliable, then maybe it gets capitalized for 20-30 years. So it sells for 250k, making its capitalization rate 4%.
This would be the land value tax. 4% of the assessed value per year.
That equals a 100% Land Value Tax, because the land value tax, as you suggested, is a full tax on the amount of income you make holding a piece of land solely attributed to its location. As Part 3 suggested, rents get fully capitalized in land value, so that's essentially the same as its appreciation rate.
I totally understand that, and it may be a fine model for some statistical calculations, but it doesn't work out in practise.
If i plan to make a cake tomorrow, and we agree that you supply me with all the ingredients and half of the cake is yours. This works well and you will get your share as soon as the cake is out of the oven. But there is just impossible to give you your half of the cake the very moment you give me the ingredients or even when we make the plan. This is just real world physics and can't be changed.
I just can't give you something right now that probably will exist but isn't here yet. The same is the profits of land: I can pass on to the community every single dollar that get in my hands from the fact that I own that land. I would be happy to do that tomorrow and I would also agree to pay an equivalent of non financial advantages I practically get right now.
But i can't give you some money now that i will probably get in a few years. Statistically this looks the same but in practice it makes the difference of being ruined or not.
Well, this is the point. Potential rent is imputed income. You COULD make 10k/yr on that piece of property. If you choose not to do that, then you're underutilizing the property and making the community worse over all.
In regards to homes, we've let you guys way overemphasize homes. The VAST majority of land value is in urban land which is at LEAST mixed use, but heavily used for productive activity, not housing.
When you do talk about homes, then we already pay property taxes. That isn't something that is new. Now we're suggesting that 1) The purchase price of your home is lower, 2) Your wages are higher 3) The taxes on your wages and investments are lower 4) Whatever is left over becomes a CD.
I think you'll be able to pay the LVT. And its empirical, as well. In Harrisburg when they implemented a split rate tax, the average homeowner paid less tax, and business development increased.
1) The fact that you COULD make some income is a speculation itself. As i understood it, George wanted to stop all speculation on land value. Nobody can promise that I actually can generate this income even if i try the hardest, there are too many external factors.
2) Enforcing the 'best' utilization of some land is not a good idea in my opinion:
- Using land in the most financially profitable way is often not the same as using it in the way the community profits from. This is like if you say that everything that increases GDP is helping society to develop. Just imagine me demolishing your car. This would increase GDP because you need a new car and you will spend more on insurance. But it hurts your well being, it will make others afraid about their cars, it is a waste of resources... I just can't find anything positive about it for society.
- every move to a new location comes with a lot of cost, this is for a business and for a private household alike. It's not only moving all the stuff, it's also searching a new location, doing the paperwork, the risk that the location has disadvantages you didn't think of, telling everyone the new address. This all consumes a lot of time and mental energy that could be used better to develop the business itself, or to enjoy life.
- Forcing everyone to change the use of land at a certain time means a lot of cost to the economy and a waste of resources. Imagine you built an apartment block some 15 yeas ago witch was the best possible use of this land in that time. Than the area develops faster than usual perhaps there was a new theme park build somewhere around 5 years ago. Now this park florishes, a lot of tourists come in and the 'best' meaning most profitable way to use my land would be to build a hotel here. So is it a good idea to kick all your tenants out, demolish your building that has payed back only halfe of its construction price and build a hotel? How long will this last, do i have to demolish it in a few years to build a high rise?
- often placed are very nice and very attractive exactly because the land is not used efficiantly. This applies for many tourist destinations for example.
What about economic crashes? Part of my reluctance around this theory is that the Celtic Tiger era in Ireland came to depend very heavily on the construction industry and the housing bubble, and when that all blew up, you had houses that were in negative equity. Landlords couldn't rent at the then market price because nobody could afford to pay, so rents decreased and landlords were happy to get any tenant they could.
As the economy slowly improved, rents went back up because now people could afford higher rents and landlords could be choosy about tenants.
So say I'm a prospective landlord who thinks I can get $10,000/year from that piece of land. But oh no, the bubble burst, now at most I can only get $6,000/year in rents. Is the LVT - which was based on the $10,000 valuation - now reassessed, or am I paying more than the land is now worth (and the value of the land now wavers depending on 'are we living in boom times or bust times?')
Georgist tend to think, with pretty decent empirical evidence, that crashes are CAUSED by land speculation and with an LVT the curve would be smoothened and they're be significantly less likely.
https://www.progress.org/articles/the-depression-of-2026
https://web.archive.org/web/20210814121028/http://foldvary.net/works/geoaus.html
Fred predicted the real estate driven recession of 2008 in 1997 and predicts another downturn on the 18 year cycle in 2026. He passed away this past year, unfortunately.
But yes, if land values decrease then the land should be reassessed down to a lower value.
Nice house you got here, it would be a shame if my regression analysis will happen to it.
Regression analysis or not but Georgism will certainly create situations where people are forced out of they homes because they can’t afford paying taxes for it. There is this popular movie plot with a thugs bullying family to sell they home so more expensive real estate can be built instead of it. Well, with LVT you don’t need those thugs.
Also you mention that there is small amount of complaints about property assessments. But it might be because property is usually highly undervalued. If you will get to your 85% you will get tonnes of complaints. And this channel of communication will favour companies with huge lawyer stuff.
I am not a Georgist, but far as I can tell, the responses are:
1: incrementalism. The tax would start very low and ramp up over years or decades so people would have lots of time to move.
2: that’s the whole point. People living above their land rent means are depriving their communities of better developments that could take their place. Society is better off when they leave.
3: the land rent wouldn’t be that high for most cases.
If the tax is announced, the current owners take the price hit immediately as their sale price will factor in the coming LVT. An LVT that was adopted after a warning period of 9 years would half prices immediately if the time value of money is 5% a year.
In practice it wouldn't actually be announced that the tax is going to ramp up. If it's successful, the rates will be continuously negotiated each year or two while other taxes are cut. In the US, it basically has to happen this way. Every 2 years, it's a new Congress and tax rates are renegotiated. Even if a full transition were formally announced, the next Congress could just undo it.
In actual practice, the rates will never ramp up because land owners are politically powerful.
One thing I keep wondering about while reading this... How do we deal with the incentive to lower one's land value, and by extension land tax, by being as obnoxious as possible and discouraging everyone else from living nearby? (Pigovian taxes, I know, but how do we calculate them? It may be tempting to make them insurmountably large, but that might discourage operation of useful, or even necessary facilities.)
My intuition tells me not to put too much trust in market value, and that land tax should probably be at least partially detached from it. Not sure how that squares with the whole theory, though.
If you have four brothels on a city block, each will lower the value of the surrounding land. Making one into an apartment building will not change the value of land - it requires all of them to be removed to clean up the area. If we need to take into account all subsets of transactions, not just each marginal sale, pricing becomes harder.
This is not farfetched as basically gentrification is this process and can be done, but it is tricky. A few hold-out crack houses can keep an area poor for quite a while.
I don't know if it's been said in some other comment(s), but personally I really feel like some discussion of the consequences of what examples of LVT have existed (and especially those which have been abandoned) are warranted. Basically I want an answer to the question: if the LVT is so great, why isn't everybody doing it? And if its effects are there even for incremental advances, why haven't countries with LVT gradually increased the LVT rate (presumably while lowering other rates)?
I thought a bit more about the LVT and think that if it becomes federal tax, avoidance is trivial. Consider a wealthy city surrounded by fields. Each plot in the city has a large unimproved value because it is next to other plots in the city where many people live and work, so each plot is taxed a lot. Now the landowners setup a new company City Inc, swap all their plots for shares in this new company and setup company governance to replicate their old rights. All the land in the city is now a single plot owned by City Inc. This plot is surrounded by fields. Now, the unimproved value of this single plot is pretty low, all the network effects are fully internalised to improvements of the plot and are not part of its unimproved value. So City Inc pays very little in LVT.
Property clearly can't be valued once we allow mergers and divisions of plots; your example is this taken to extreme. What is the value of 100sqm within Disneyland worth? (A vast amount, you could build a hotel there!) Is that true of every separate individual 100sqm within Disneyland? (If not, why not?). So is ALL of Disneyland worth "whatever value you just found for 100sqm" * number of 100sqm plots that fit within? Great, buy them all up, fill it all with hotels, see how much value you really have!
Your example is exhibit N of "hypothetically empty land just does not have objective value". (N, number of problems, is large.)
To be clear, I am of course agreeing with your great point. But whenever you have actually a LVT (so far as I know) you *do* get ad-hoc around plot mergers or splits. Just part of the endless complexity you need to add to keep things looking remotely sane.
'ad hoc' -> 'ad hoc rules'; sorry. Wish there were an edit feature (what is this, 1990?!)
The model inputs based on open-market sales of nearby comparable properties seem like the soundest, and most important. Wouldn't a 100% LVT destroay these inputs? And wouldn't even an 85% LVT degrade their quality significantly (by magnifying distortions and overheads)?
Whenever land changed nearby for a positive amount, that would be evidence that the local rate was too low. Whenever buildings were sold for below their replacement cost then that would be evidence the rate was too high.
Having an asset that sits near zero should not be a problem so long as the improvements _ that asset sell regularly. The unaccounted value of the land is then the difference between the sale price and the value of the improvements. I do worry that this might cause actions that game the system.
I think that you're correct.
In practice, my take is that an 85% LVT would be calculated with a methodology such as estimated fair market land value in a transaction * 100/15 (grossing up sales land value for assumed capitalization of the LVT) * an estimated annual cap rate. If the estimated cap rate is, for example, ~3% to ~5%, the math simplifies to estimated land value in a transaction * ~20% to ~33%.
An issue, however, is that most observed market transactions are for a bundle of "land + structures / improvements". Suppose that the pre-tax value of a property is split 50 / 50 between the two. Under an 85% LVT that's fully capitalized into land value, the land value drops by 85%, so land now represents ~13% of market transaction value ( 7.5 divided by 57.5 ).
So the LVT on this hypothetical property is now highly sensitive to (1) changes in overall value of the land + structures/improvement bundle and (2) the value assigned to structures/improvements.
If the total assessed market value increases by 6.5% and that value is all categorized as land value, then LVT increases by ~50%.
Similarly, holding total assessed value (for land + structure/improvements) fixed, decreasing assumed structure/improvements value by ~7.5% would increase the assumed land value (and hence LVT) by 50%.
I'll also note that this arithmetic is still relevant even in high land value areas that Lars used as examples in part 1. In that post, he references an estimate that average land share of property value in San Francisco County is ~70%.
Applying an 85% LVT (assumed to be fully capitalized into market value) reduces land share to ~25% of observed transaction value. So a 6.5% increase in assessed market value increases LVT by ~25% even when running these rough calculations for an area with very expensive land.
Lars, thank you for your hard work in writing this series. It was very illuminating!
Have you come across the other 19th century economist Silvio Gesell in your research? He was sort of a German version of Henry George, but came up with a slightly different, and IMHO complementary attack on economic rents. His land reform proposal involved the government taking possession of all land and operating annual auctions for their use, which as far as I can tell is the game as georgist LVT but with more steps and assessments done by auction.
But perhaps more interestingly, he also found that there was a huge untapped source of economic rents in the financial sector due to monetary policy, which causes there to be a gap between the obtainable interest rate of a loan (say, 10%) vs the actual calculated risk (say, 5%). The difference is an economic rent making the wealthy get wealthier through no action of their own. At the turn of the 20th century, Gesell was writing about precious metal currencies, but it still holds just as true of fiat money today, except the seignorage is now captured by banks. Like Henry George, he suggested a 100% tax on this economic rent in the form of demurrage--a holding cost to money, which then trickles into all other financial instruments.
I think there's a good chance that a georgist LVT plus a gesellian demurrage money-holding tax would together provide enough government revenue to replace deadweight taxes. (Quick estimate: there is $20Tn M1 dollars in circulation. A 3% demurrage rate would generate $600bn per year. Enough for medicare at least. But like LVT there's arguments that taxing this wealth holding rent will generate more economic activity in a positive loop, and 3% was a conservatively low rate.)
Would LOVE for you to research Silvio Gesell and add his monetary reforms to your series.
https://en.wikipedia.org/wiki/Silvio_Gesell
https://www.npr.org/sections/money/2019/08/27/754323652/the-strange-unduly-neglected-prophet
Do you have any source for those economic rents being extant in the modern day? I can readily believe they existed a century ago, but the modern financial system is extensively optimised to pounce on arbitrage opportunities and what you described sounds like a massive arbitrage opportunity
The current risk-free rate of return hovers around 3%, at least pre-pandemic: https://www.duffandphelps.com/insights/publications/cost-of-capital/us-normalized-risk-free-rate-lowered-june-30-2020
Can you explain what the arbitrage opportunity is? I don't believe that there is one here, at least not one that hasn't been already exploited to the limit.
The problem is that money itself is a monopolized resource. It is not a natural resource, at least not since the gold standard was abolished, but it is a state-granted monopoly managed by the central bank. If there are people of sufficient creditworthiness wanting to take out $250bn in loans, but there is only $200bn in literal cash available to loan out, then only 80% of the people will get their loans. This is inefficient for two reasons: (1) the other 20% aren't as economically productive as they could have been, which is an opportunity cost; and (2) the people who get their loans do so presumably because they are willing to pay a higher interest rate, the difference being an unearned rent that accrues to the bank.
But, you object, what about fractional reserve lending?! You're right, banks get to magic money into existence for their loans, which complicates things immensely to such an extent as to make any reasonable person's brain hurt. But the same basic problem still exists: if there are $250bn demand for loans, and cash at hand plus reserve requirements allows for an aggregate of $200bn in loans to be made, then the above example still holds. The 80% get their loans by paying a higher premium (the bank's rent), and the other 20% are stuck being unproductive and/or underemployed.
You can't arbitrage this because you can't literally make money. Only the central bank and its licensed and regulated client banks can do that. (Psst... you can too with That Thing That Is Definitely Not Called Ripple https://rumplepay.com, but that's a topic for another day.)
The modern monetary system allows states to manage their economies through interest rates and reserve requirements. A economy is most productive when interest rates and reserve requirements are zero because then the risk-free interest rate would also be very near zero. But they can't actually do this because inflation would go through the roof. Demurrage (applying a holding cost to money) on the other hand *does* allow the central bank, or whoever sets the demurrage rate, to effectively get the same thing without exploding the money supply and causing inflation. And it does so, coincidentally enough, by confiscating those rents collected by banks via the phenomenon of the risk-free interest rate.
I sort of believe in aspects of Georgism, in that a tax on land or at least wealth is fairer than most existing taxes.
But I actually think this article missed the point. It isn't that its mathematically difficult to assess the value of the land, it's that the value of land is instrinsically tied to the developments on and near it.
If I create a data model which says "proximity to high quality employment", "proximity to famous businesses", "proximity to people with high incomes" is valuable, and note that this model says "the land under Google's offices is super valuable", and then use this to level punitive taxation on Google, in what sense am I taxing the "land"? All I am really doing is levelling a tax on Google and companies like Google, and all this in practice would mean is those businesses move offshore, or at best geographically fragment themselves to regions where it's almost impossible to assess their land value granularly enough to catch them out.
Combine this with the comments about expropriation of landholders being necessary because they are the moral equivalent of slaveholders, and this starts to look less like a proposal for efficient taxation, and more like warmed over authoritarianism. "Oh yeah unlike a traditional authoritarian regime, we won't take all your stuff, we'll just escalate taxation on your landholdings until the point the land is worthless and the level of taxation bankrupts half the businesses unless they move"
Just to build on this, say Google says "oh you Georgists are right, we've been unfairly exploiting the enormous land value in California, we're going to give up our $20 billion in annual tax fees and shift our business to the middle of nowhere in rural Texas, where the land tax is only $100 a year - thanks" - how does the Georgist respond to this?
It seems to me you wait for Google to set up their new office in rural texas, and then declare your models show that the land under Google in rural texas just happens to now be valuable - the fact the "value" seems to follow Google wherever they go and has nearly nothing to the land itself seems to be purely incidental to the Georgist in practice, despite part 1 of this series being about the importance of land.
What Part 1 was explicitly getting at was that, even as fundamentally digital as our economy is, physical location is still important and always will be.
But you're right, value moves around with valuable things. Google presumably is in a very expensive place, because it makes it easy to recruit and retain talent, its a desirable place to live, etc, etc.
I don't think you'll see a massive flight of capital out of an area as a result of a LVT. Only idle landholders, which is what we want to leave.
If taxable value moves around pursuing high value people and businesses under a Georgist system, it's clearly not a value of the "land" at all, and this is why as much as I like some of the underlying principles of Georgism, this explication of it reads more like "from each according to their ability".
And of course the corporate response to this will be to move to low tax juridictions, under the Georgist-nationalist model proposed here, Google simply needs to offshore their operations from the US to say Canada, at which point they're deemed good corporate citizens in the US since they are no longer exploiting the "land value" inherent in the country.
So, note that Google is *already* paying a massive tax to have its HQ near SF, in that the market salaries are massively inflated compared to equivalent jobs in other cities in order to pay the high local rents - that's land value right there.
If Google moved its HQ to some middle of nowhere paddock, their land tax would be negligible, but they're not going to do that - their staff want to live in a city, so Google would move somewhere with amenities, and a land tax is a fair way to pay for those amenities.
Steelmanning your argument - Google would not move to avoid a land tax worth a few percent - therefore it certainly would not move to save a much larger land tax that would destroy its revenues entirely.
I have not read all the comments, apologies if this idea was already mentioned. But there is evidence that property tax valuation can be made "self-enforcing."
The Value of Self-Enforcing Protocols
Bruce Schneier
August 10, 2009
<https://www.schneier.com/essays/archives/2009/08/the_value_of_self-en.html>
Here is a self-enforcing protocol for determining property tax: the homeowner decides the value of the property and calculates the resultant tax, and the government can either accept the tax or buy the home for that price. Sounds unrealistic, but the Greek government implemented exactly that system for the taxation of antiquities. It was the easiest way to motivate people to accurately report the value of antiquities.
If implemented literally this way, it would also allow rich people to harass honest poor people, by buying their homes at market price, and selling them later.
I mean, if the value is estimated *correctly*, it means that if I buy it from you at that price, I should be able to sell it for approximately the *same* price later, so there is only a little transaction cost for me, and also some risk that in the meanwhile the market value may change (but it may change in either direction).
The transaction cost of losing your home and moving to another place would be much higher for you, even if you can buy the new home exactly for the money you received for the old one. You have to move the furniture, tell everyone your new address, all decisions you made in the past based on "this is close to my home" are invalid now, you need to build relationships with new neighbors, etc.
So there should be some safety margin, such as buying for 150% of the declared price, which would mean that if you are a honest person and some millionaire decides to harass you this way, at least you make some money.
How about if the buyout option was only available to property tax authority, and not the general public?
The Schneier article claims this setup is already being used for antiquities in Greece. Are any readers familiar with the details of this?
Then it's the tax authority that can harass people...
The safety margin, such as buying for 150% of the declared price, more-or-less solves this problem—and it's effectively equivalent to letting people buy for 100% of the declared price, and making the tax 67% of what it would otherwise be. Then you can just declare a 50% higher value than its actual value, or however much safety margin you want.
This works for a property tax, but not for a land value tax, because you can't really buy or sell the land separately from the house on it.
Works for property and other goods where an actual transaction in the good in question can be done at a reasonable transaction cost. It is not clear how this could work for the double abstraction of the Georgian land valuation, as they want to tax *unimproved* land value in a *hypothetical world where the land value tax is 0*. Each of those assumptions makes a simple sale impossible.
Another idea about property owners setting tax assessment values, which potentially enable buyouts:
Instead of allowing buyouts, allow people to pay tax on higher valuations in exchange for "Right of First Refusal." (Investopedia: a contractual right to enter into a business transaction with a person or company before anyone else can.)
Could this result in tax being collected on the full market value of the property, with the owner paying the portion they regard as a fair value, and the prospective buyer paying whatever additional amount they feel it's worth?
A couple challenges I think the author could take more seriously:
- Property purchasers will be incentivized to bifurcate their purchase price into two. One for land, one for improvements. They'll game the system. This is important because the ones most capable of doing it are the existing institutional landlords.
- It's possible to improve land without building something that is considered an "improvement" (e.g. environmental clean-up) and it's bad public policy to disincentivize those improvements. Presumably the value of the land, and therefore the tax, goes up once money is invested into "fixing" land.
"Property purchasers will be incentivized to bifurcate their purchase price into two."
In the USA this already exists. An entire industry called "cost segregation studies" that divide properties into not just two but many categories to maximize depreciation deductions for taxes. It is a real thing, although there are abuses and the IRS watches for them.
https://www.irs.gov/businesses/cost-segregation-audit-techniques-guide-chapter-1-introduction
The IRS says at that link:
In order to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset or property owned. Property, whether acquired or constructed, often consists of numerous asset types with different recovery periods. Thus, property is typically separated into individual components or asset groups having the same recovery periods and placed-in-service dates to properly compute depreciation. When the actual cost of each individual component is available, this is a rather simple procedure. However, when only lump-sum costs are available, cost estimating techniques may be required to "segregate" or "allocate" costs to individual components of property (e.g., land, land improvements, buildings, equipment, furniture and fixtures, etc.). This type of analysis is generally called a "cost segregation study," "cost segregation analysis," or "cost allocation study."
Thanks for sharing, this is very interesting. I was thinking of forms like the PT-61 in the state of Georgia where a real property purchaser has to disclose the purchase price of the real assets involved in a transaction. Many commercial property investors attempt to game that system by separating the value of leases from the inherent value of the building improvements sold, but you could imagine where this type of trick gets extended to one sale price allocated to land and the rest allocated to the building on the land, solely to trick the local assessor. I wasn't even thinking of the depreciation angle which is important because a new land tax might push real estate owners to lean even more toward attributing a greater % of purchase price to buildings instead of land, and therefore greater depreciation tax deductions.
I also see many of the comments treating Georgism as an all or nothing proposal. If a land tax is more "fair" and represents fewer dead weight losses in the economy, then an incremental increase in tax on land offset by lower sales tax rates might still be viewed as ideal. Given the possible opportunity to "game the system", it might even be optimal (i.e. most "fair") to implement a small new tax on land instead of 85% like the author considers.
"and therefore greater depreciation tax deductions"
The flip side is when the property gets sold. For USA income tax, land doesn't depreciate and buildings do. Lots of moving parts, but sometimes this gives the buyer and seller opposite incentives, where the buyer wants the price to be all buildings and no land, the seller wants the price to be all land and no buildings.
Hmm... maybe if they both had to agree on how the price is being allocated...
This already exists for selling a business. IRS Form 8594, Asset Aquisition Statement.
https://www.irs.gov/pub/irs-pdf/f8594.pdf
That's for situations where a buyer is paying for "goodwill," or the "brand value" of a business. Seller wants all goodwill and no assets, buyer wants all assets and no goodwill. (Well, directionally if not exactly.) That form sorts it out, they both have to file a copy with their tax return, the IRS can make sure it matches.
Phase it in gradually, sell it as a fairer property tax (don't punish people for improvements, by George!), perhaps limit it to cities and you've got a stew going.
At the part where you said assessors use (lack of) complaints to decide they're doing a good job, I was thinking: Well, that would go a long way towards explaining chronic under-assessments! You have an error signal that squawks when you're too high, but not when you're too low.
On what questions a follow up should address (if they haven't been addressed already—I haven't read the series in full):
(1) How a LVT would be free of deadweight losses if city land is taxed at based on its market value, rather than at the much lower value it would have as farmland. The reason a LVT that taxes the agricultural value of land is, in theory, free of deadweight loss is that human activity doesn't affect the tax, and it thus doesn't change incentives (a fixed head tax is another tax with this property). However, taxing city land at much higher rates means that human activity affects it, and that means it can disincentivize that activity, and it's no longer free of deadweight loss. (Many comments have asked similar questions.)
(2) Would the extra LVT from city land (above what the tax would be for it as farmland) go to the city government, redistributed in some form to the residents of the city, or to a higher-level government (county, state, national), and redistributed also to people outside the city? I see major problems with both approaches (deadweight loss in the latter cases, spiralling rents and taxes in the former). https://astralcodexten.substack.com/p/does-georgism-work-part-3-can-unimproved/comment/3984715
(3) Would the owner of any plot, however small or large, be taxed based on the value it would have if it were unimproved, but surrounding lands were developed as they are in reality? Would a company town pay LVT based on the value of the land as farmland, but if it's sold off as plots, would the new owners pay a much higher tax? (The City Inc. question, asked by Long Disc. It's the most relevant if the LVT would go to a higher-level government.)
(4) Would investors trust that no other asset class would be effectively expropriated with some excuse/argument, after lands are? If investors don't trust that, there would be a huge deadweight loss.
I think I understand the problem of Georgism. It thinks the land has value beyond the improvements. If we take for example Manhattan, a very expensive place to live, and remove only one improvement - for example, a functioning sewage system, the value of the lad would plummet.
Georgism solves the issue of Free riders, people who do nothing and gain from the improvement of others - the owner of an undeveloped land in Manhattan is rich even if he didn't do anything but hold the land.
But it hurts the collateral actions - as a group, land gains value because of improvements, for the entire region. What makes Manhattan expensive is that it has lots of buildings and a Metro and bridges and electrical net and everything else that makes life in Manhattan Good.
It is not the land itself.
So Georgism solves the individual free-rider problem, but taxes the very thing we want - land improvements.
We get those by Good governance, well thought laws, inducing industry and builiding good infrastructure.
Georgism is basically a Tax on all of these.
Why would people build a Metro, if it will raise taxes on them?
"Georgism solves the issue of Free riders, people who do nothing and gain from the improvement of others - the owner of an undeveloped land in Manhattan is rich even if he didn't do anything but hold the land."
"So Georgism solves the individual free-rider problem, but taxes the very thing we want - land improvements."
The impression I got is that Georgism could potentially set off a competition for everyone to out-develop their neighbors. Higher development makes higher demand for land, then higher taxes which fund the Metro, which people will support if it's a net benefit to their properties in spite of causing yet-higher land values and taxes.
That really depends if the taxes are local - but even if it is so, it would just tax all the gains away to something else. Maybe of the tax rate was something like 20percent.
There are a few comments concerned about accuracy of valuing land on a large scale. I don't really have anything to add on an intellectual level but, as the article mentions, Australia happens to be a place where this is done for the purpose of taxation, and a lot of the data is freely available for perusal. https://qldglobe.information.qld.gov.au is a GIS representation of a bunch of things for one Australian state, and Layers -> Add Layers -> Economy -> Land Valuation will let you browse around any property in the state and see the latest official land valuation. My lived experience as a homeowner is that it's a reasonable estimate, but is a bit slow year to year in responding to property market shifts.
A couple of possibly dumb questions:
1) My impression is that the primary thing public land assessment affects is property taxes. If true, doesn't that mean that landowners have every incentive to make their assessments as low as possible? If that's the case, then I wouldn't expect "low rate of complaints" to be a good predictor of assessment accuracy.
2) What in the world does it mean to put a p value on a regression? What's the null hypothesis? That there's no structure at all to the data? Wouldn't that basically always be false?
You should look into Glen Weyll and Eric Posner's book Radical Markets and their COST; that's what introduced me to Georgism. The really elegant solution for any form of a wealth/property tax (including LVT) is self-assesment with a robust market with negligible transaction costs. Imagine a system where your house and land are permanently listed on an exchange. You set a price for what it's worth and anyone who pays that price (or some small percentage e.g. 5%) above it can immediately buy it no questions asked. You are then taxed based on a fixed percentage of what valuation you listed. This has a couple of benefits. 1) Accurate pricing. Lowering your taxes incentivizes you to undervalue your property, BUT if you value it too low someone else will just buy it off of you and you'll lose your property. This forces a system whereby you always want to accurately price your property such that you won't be overpaying in taxes, but won't be forced to sell your property for less than what it's worth. 2) Utility/Resource maximization. Differential preferences make the world go round. Each person is taxed according to what his individual value is for an asset, and if someone else has a higher value, there will be a transaction. Now the person with the highest utility gets the property and we've increased gross utility/productivity in our economy. Whoever has the best use for the property will naturally get it.
One thing I think should also be touched on is mass purchasing of properties by the likes of Blackstone and others. Given the financialization of real estate and mortgage markets the natural buyer is always the entity with the lowest discount rates and borrowing costs. At the end of the day what matters most isn't the purchase price of the house but the yearly cost of ownership = mortgage + taxes + maintenance + utilities. Large institutions can borrow at much lower rates, can perform maintenance much cheaper through economies of scale, and can sometimes use market power to negotiate special tax abatements. This leads to a scenario where BX's personal "cap rate" is 3% but individual landowners is 6%, so they buy all the housing offering a 5% cap rate to the property owner's joy and then jack up the rents once they have a monopoly.
>> Pretty much everybody agrees on the basic algebraic formula for deriving land value:
>> Total Value = Land Value + Improvements Value
Can I put up my hand and say that I think this is utterly, miserably wrong.
The very notion of "land value" implies a degree of fungibility that simply does not exist in reality. As a rational economic actor I am expected to be indifferent to two parcels if they have the same value (or profit potential maybe?). Suffice to say, this is not how most human beings behave or feel.
In modern society, the largest component of "land value" is not a property of the land itself, it is a property of the local human infrastructure (i.e., community). This is complex and two-way. Residents themselves both derive value from and contribute value to their community. As such, residents are not fungible in the value calculation. Any model of society and economics that does not include some notion of the value of community is going to be at best useless and at worst is going to have downright evil consequences (hello supercharged gentrification!).
While I am sure that there is a fantastic transitional plan to be really gentle about evicting people from their communities to reallocate the places they live to more efficient uses, I doubt this plan would survive the ensuing riots. So yes, while I am sure that it is a far more efficient use of Silicon Valley land to bulldoze every single family home and replace them all with high-rise apartments for 25-year-old tech workers, you would need to have a communist level of disregard for the damage you would do to the community by making it impossible for the people who currently live here to raise families without moving away.
Something that just occurred to me is that I already have a somewhat explicit valuation on the improvements part of my house, in that I need to figure out a number to put on the insurance for full replacement value. I would guess that the vast majority of urban homeowners have this too, wouldn't this be a good way of determining improvements value? Then add it to the total sale prices which are already fairly well estimated and you're left with a good valuation for the land only.
I feel like this has probably been addressed and I forgot but has there been discussion about using harberger taxes to assess land ? It would be difficult to implement since the improvements would need to be excluded but maybe there's something there.
I'm basically a georgist, and don't think the valuation problem is intractable, for most of the reasons you've described.
However, I was surprised that you didn't seem to cover in much detail the fact that in a world where 85% of land rents are taxed away, land values are roughly 15% of their untaxed value, so presumably the noise in any market-based valuation estimate goes way up (land worth much less relative to improvements).
I think the solution to this is probably estimating land rents directly (which would need better public data on rents) or a self-assessment mechanism.
I think you can solve all of the problems of assessment by just doing what apartment/condo owners do. Target 95% occupancy (or whatever number you like), and increase the price when occupancy exceeds the target and decrease the price when it is under the target. You can do this *entirely* algorithmically so there is no room for corruption. Either someone is paying their land tax (set by an algorithm) or they aren't and anyone can move into the property.
The algorithm would weigh nearby plot occupancy based on the square of the distance (in a perfect world infinitely so like gravity, in reality up to some finite distance). You can have a limit on how much the tax can increase in any given year to protect people from being suddenly overburdened with taxes, and you can have the tax rate determined at the start of the year and paid at the end so people have a year of knowing what their tax rate will be (thus time to move if it is too high).
This will result in the government extracting the maximum rent possible (something governments like) without being such a burden that no one wants to live there (so no Detroit problem). This aligns incentives (as indicated in this article) because they explicitly want to attract people. If your policies are driving people away, your income to enforce those policies is driven away at the same time and those willing to stay pay less as their peers leave until equilibrium is reached.
What I *really* like about this style of assessment is that the implementation costs are essentially as low as is possible for any kind of taxation. The amount you pay is defined by an immutable algorithm that has no human influence once it is launched, there is almost zero room for gaming the system by any actor, and the overhead cost of collection/enforcement is incredibly low (if tax goes unpaid, title transfers to first person who shows up and starts paying rent).
The two downsides to this that I can think of are:
1. Hyper inflation may outpace the maximum rate of change of tax rates, which can lead take a very bad situation (hyper inflation) and make it worse because the government now is unable to collect enough taxes to operate. One could argue this is actually a good thing because it incentivizes governments to be *incredibly* careful with their local currency, which is the opposite of the current incentive structure where governments functionally print money (leading to inflation) because it is "free money" for them.
2. There is incentive for people to be dicks and drive their neighbors away (as that lowers their taxes). I think this is a significantly bigger problem than the hyper-inflation one, but I believe it is already a problem with Georgism in general. I don't have an obvious solution to this particular problem, though at least the government is incentivized to address it with local policies and enforcement actions.
I have a business investing in vacant land, so I can chip in a little info regarding data quality in most of the US: it's terrible.
There are 2 basic sources of real estate sales data: the Multiple Listing Service (MLS) used by realtors, & county data. Many (most?) land transactions don't go through realtors, & so don't show up on the MLS. (Neither do any commercial or industrial properties - the MLS is just for residential real estate). And county data is typically awful, for a couple of reasons:
First, because land sales are much less likely to involve banks, they can be much more informal. Grandma sells her grandson a piece of land for 10% of market value to get around inheritance tax. Or you buy a piece of land for $1000 + a pickup truck - the $1000 shows up at the county as the sales price, but not the (say) $20K truck. Or the seller finances the land to the buyer, which allows them to charge a higher price than they could have gotten for a standard cash sale.
The other big issue is multi-parcel sales. Say you sell 10 lots for $100K total. Some counties will record the sales price of each lot as $100K, thus over-estimating values by an average of 10x. Some will just divide evenly & show the sales price of each as $10K - which will be fine if they're all the same size, quality & location. But what if one of the lots is 0.1 acres in the middle of nowhere, & another is 100 acres in a prime location? They're both showing up with the same $10K sales price.
Finally, in most areas, there are a lot less sales of land than of buildings, meaning the raw amount of data points is limited. This further means that all of the above distortions will have an outsized effect on the small data pool.
It also means there may not be any truly comparable properties to base a valuation on. Consider a hypothetical 50-acre tract, the last large parcel in the area, surrounded by 10-20 year old housing developments. The only nearby sales in the last decade are quarter-acre lots in subdivisions. The closest 20-100 acre sale was 3 years ago & 30 miles away, in another town with totally different characteristics.
It is generally accepted among land investors that land cannot be accurately valued, given the poor data available. Instead, everyone just ballparks it & buys at a big enough discount to cover the uncertainty. The same problems plague appraisers. And Zillow - if you check you will see that most houses have a Zestimate, but land almost never does. They're not very accurate on houses, but they don't even try to price land.
I wanted to learn data science, so as a project I pulled all the real estate data from a local county with good, publicly-available records, & used python packages to build a regression model. It was mediocre - mostly it was close to my manual estimates, but unacceptably often it would be off by a factor of up to 10x in either direction. Even above-average county sales data just isn't good enough to build an accurate model. Others people with way more skill in both investing & data science than me have reported the same thing.
With respect to scraping data from Zillow - people have done so, and been immediately & permanently blocked from accessing the site. There are some applications out there that streamline a manual copy & paste process, but you wouldn't want to do the whole country that way. Besides which, as noted above, the sales data would still be woefully inadequate for making accurate valuations.
Correlational analysis, whether linear or nonparametric regression, seems like the wrong tool here. We want to know the *causal* effect of size, age, number of bedrooms, etc, on land value. That requires causal inference, not predictive modelling.
Why not just use Harberger and make it the property owners' problem?