There are two kinds of improvements, those of the land itself (like a new road or a water pipe etc) and those like houses or businesses. LVT directly includes the former, as they would be included in anyone's assessment of value (whether that be a government assessor or the owner). However, the value of the land is also indirectly linked to the improvements like houses. If you make a piece of land more productive by building on it then the land itself becomes more valuable, as will nearby land.
So with either kind of improvement the tax can go up, but LVT still encourages development compared to property tax as undeveloped land will still attract a greater proportion of tax than it would under a property tax.
I think you're missing my point. We're in a subthread where you floated the idea of a bidding-based scheme as a way to set LVT land values.
If you set the tax rate by having owners bid a price they're bound to sell their property for... that's going to include improvements like dwellings, since the owner can't take their dwelling with them and doesn't want to just sell the property with their dwelling for the land value alone.
In turn, this fails at setting the rate for a LVT, because it captures the value of improvements like houses in the taxed amount.
In Japan it's reasonably common for someone to own the land while someone else (e.g. a homeowner) owns the buildings on the land and has certain rights to live there that the landlord can't ignore (and hence can't just turf them out suddenly).
Flats in the UK are leasehold, which means you can buy (part of) a property and still not own the land.
It's possible to separate the two, but not in a way that gives a meaningful true market value for land alone in the short term-- rather just values for land in long-term option value after other rights are considered.
That is, that leaseholder you can't turf is enjoying a lot of the value of the land, and it may not be correlated to past payments or transactions.
In turn, lots of the benefits of a LVT evaporate if the taxable value (of landowner's eventual rights) is so decorrelated from the present value of land uses.
That's the problem here: valuing the land alone is hard. Separating rights, adding more owners and options and preferences --- doesn't make valuing the land alone easier.
In the example where a landlord has a tenant with a building that that tenant owns, the landlord knows how much they are charging the tenant, which is the primary signal of the value they can extract from that land in that situation. Hence, they can calculate a tax level they're comfortable with paying (and I posit that it would indicate the value of the land to the owner).
The tenant knows how much value they are getting from being there, at least relatively, because they pay the rent. If you're paying twice as much rent for half the space as your mate, unless there's some reason like being closer to the centre of the city or something, you know you're getting a bad deal.
Pricing can be difficult but it doesn't exist in a vacuum, there's a whole market to compare to.
> In the example where a landlord has a tenant with a building that that tenant owns, the landlord knows how much they are charging the tenant, which is the primary signal of the value they can extract from that land in that situation. Hence, they can calculate a tax level they're comfortable with paying (and I posit that it would indicate the value of the land to the owner).
Yes, but... As I keep trying to make clear:
* Anyone improving the property requires some kind of protection of this investment, usually in the form of a durable ownership interest or a very long term lease, with a value chosen based on both parties' estimates of the utility of the land over that lease term.
* In turn, the rents that the landlord receives from the property can be not-too-closely related to the present value of the land. They may be higher or lower.
* In turn, the land value tax doesn't succeed in capturing the true market rent of the land when it is based upon bidding by landowners, whether we're dealing with separate owners for improvements or not.
Imagine the case of someone who entered into a long term lease (60 years? 99 years?) in 1975 to build a house surrounded by orchards in San Jose. The real value of land has appreciated >60x over that term. A land value tax would capture a tiny fraction of that value if the landowner was bidding based upon the lease returns + the present value of the land being returned in 40 years.
> Pricing can be difficult but it doesn't exist in a vacuum, there's a whole market to compare to.
The level of friction is so high that you can't solve this one with bidding; you're going to have to rely upon comparable sales and assessed/appraised values.
It takes two to tango. Perhaps you'd be better off keeping your frustrations to yourself and improving the clarity of your writing.
> The real value of land has appreciated >60x over that term.
What is the "real value"? It's what someone is willing to pay for it. If the returns on the land are not that much, as you contend, then it's not worth >60x what it was. If the property owner has some protection than means they can't be shifted off the land for 99 years, then that land is not worth as much as you contend because it can't be used for something else. If someone else thinks the land is undervalued then they can bid on it and make more money, but they'll have to pay the tax and find a way to extract that value. If the land really is that valuable then the landowner can say so and pay the tax on it now because they think they'll get the return in future.
In short, you're assuming that the "real" value and the actual value are different and erroneously so. This assumption makes the reasoning self-contradictory - the value is determined by people's bids, not some Pythagorean value floating around somewhere waiting to be happened upon by some perfect system.
I'm sorry that I'm frustrated, but the end result doesn't really make sense.
No, the amount agreed to pay 60 years ago does not necessarily match current market value of the land right.
The amount agreed to pay -now- doesn't necessarily equal market value.
E.g. say I have a piece of land, and I agree to lease building rights on it for 99 years to my buddy (or son, or..) for $1/year. The value anyone is willing to bid on the land should be the NPV of the remaining $99-n plus the NPV of the estimated land value in 99-n years. The tax is nearly completely escaped. All of the land value has been smuggled into the lease right, which isn't taxable.
When there's lots of degenerate cases like this, it become pretty clear the way of assessing LVTs you propose doesn't capture current market values of the land itself, since the value of each piece of land can be artificially impaired or captured by a leaseholder.
Indeed, even in the absence of avoidant lease schemes, the very fact that your scheme encourages capturing a past lease value undoes one of the cited advantages of LVTs: it no logner incents land to quickly turn over to more efficient uses. Instead, the scheme you propose explicitly incentivizes ownership structures that maintain inefficient uses, even worse than the current property tax regime that includes improvements.
Any law will need provisions to prevent corrupt practices. Whether that is easy or difficult should be taken into account, but in this case I don't see the difficulty, because
a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods
b) As I pointed out at the start, someone else can buy the land at at a very low price.
> However, if someone bids on the land for that price you must sell.
So even if you follow that avoidance strategy, I'm going to buy your land on the cheap. Perhaps I'll have to raise the tax in the meantime without the comparable rent coming in because of the lease agreement you set, but I get your buildings at the end so that's basically become a mortgage.
Of course, that possibility could be removed by a rule like having a period where a lease is in the offing where prospective buyers can buy and cancel the lease, punishing those setting low rates.
Still, I think this a digression, it's hardly a steel man, which would be more interesting. We may as well say that income tax is rubbish because people can lie to the tax man about their income.
> a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods
Your source effectively says the opposite-- some leases are limited, but "With an ordinary land lease right, the lease contract period is fixed but in practice can be renewed almost in perpetuity." and "The lease contract period under the Old Land Lease law is fixed, but the lease can be renewed almost in perpetuity."
Even the fixed terms for non-commercial use are generally very long-- "Land leased out to be used for single-family homes and condominiums can be leased out with a fixed-term land lease. The contract period is 50 years or more. "
> So even if you follow that avoidance strategy, I'm going to buy your land on the cheap.
I bid the NPV of the lease + the NPV of the land after the lease. If you outbid me, you're taking an economic loss. I can even afford to overbid a little, because I'm just paying a small percentage of my bid.
E.g. say a sane discount rate is 5% per year. Lease is 50 years. Lease payment is $1/year. True value of the underlying land is $500k. Value of land in 50 years is estimated to be $1M. Tax rate 1%.
NPV of the lease payments is $19. NPV of the land is $92,000. I bid $200k and pay $2k in tax (compared to $5k).
Sure, you could bid $200,001 and get the land, to get an asset with a net present value of $92,019. This is not a favorable transaction-- even if there's some building residual value at the end.
In the end, the only way to value the independent value of the land is going to be from some kind of assessment process. A bidding based scheme is not practical: separating the value of the land and building is really hard. (And if we start having people judge whether the pricing of leases, etc, is fair-- that's effectively assessment).
It's saying what is customary and possible. The landlord does not have to renew, I think that is quite clear from what was written in that article.
> Even the fixed terms for non-commercial use are generally very long
Because they have a land tax and a property tax. I didn't suggest to use Japan's law verbatim, nor would I, their system has a lot of unwanted side effects but it does encourage a lot of building.
> I bid the NPV of the lease + the NPV of the land after the lease. If you outbid me, you're taking an economic loss. I can even afford to overbid a little, because I'm just paying a small percentage of my bid.
Yes, but you didn't get to sign over that lease because I outbid you and it's now my land and the lease will not go forward because, to quote myself:
> 1 point by brigandish 21 hours ago | parent | context | favorite | on: High property taxes are good
Any law will need provisions to prevent corrupt practices. Whether that is easy or difficult should be taken into account, but in this case I don't see the difficulty, because
a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods
b) As I pointed out at the start, someone else can buy the land at at a very low price.
> However, if someone bids on the land for that price you must sell.
So even if you follow that avoidance strategy, I'm going to buy your land on the cheap. Perhaps I'll have to raise the tax in the meantime without the comparable rent coming in because of the lease agreement you set, but I get your buildings at the end so that's basically become a mortgage.
Of course, that possibility could be removed by a rule like having a period where a lease is in the offing where prospective buyers can buy and cancel the lease, punishing those setting low rates.
> Ordinary leases (with statutory right of renewal except in certain instances)
> Fixed-term leases (with no right of renewal)
Note that you also characterized the law as providing an upper bound on lease terms, when actually it's the opposite:
> such as ground leases must be 30 years or more except a fixed-term ground lease, which must be 50 years or more
I disagree with most everything you say, and I am not sure further discussion would be productive.
Aside from the minutiae: I do not think there is any reasonable way except assessment to disentangle the value of land and improvements in a way that tracks land value in the short term, which is required for a land value tax to yield its substantial benefits.
> Note that you also characterized the law as providing an upper bound on lease terms, when actually it's the opposite:
> > such as ground leases must be 30 years or more except a fixed-term ground lease, which must be 50 years or more
I quote from the article I shared with you:
> The initial period is 30 years, regardless of the building structure. The lease can then be renewed for 20 years at the first renewal, then ten years thereafter. This differs from the the Old Land Lease in that under the old law, the initial lease period is different depending on the building structure.
and this for fixed-term ground lease:
> The lease contract period is ten years or more and less than 50 years.
Which means we have two articles that are in disagreement but that is irrelevant because again, I am not proposing to use Japanese law verbatim.
> I disagree with most everything you say, and I am not sure further discussion would be productive.
Yes, constantly defending straw man positions or needing to answer how many angels can dance on a pin is not productive for me either.
> Aside from the minutiae:…
Thanks for selling me all your land and making my descendants incredibly wealthy because you thought it was better to avoid taxes.
So with either kind of improvement the tax can go up, but LVT still encourages development compared to property tax as undeveloped land will still attract a greater proportion of tax than it would under a property tax.