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Notes -
I largely did a sole developer framework because it’s the cleanest. And was specifically referring to the New Eastside in Chicago was I believe was a golf course in the ‘70s. But you also have situations where a neighborhood get “hot” so everyone decides to do projects near each other. Many would call this gentrification. But it involves many developers and individuals deciding to invest in a community with expectations of appreciation. Everyone doing a new project here because it’s now a good neighborhood are contributing to making the belief that’s it’s now a good neighborhood becoming the truth that it is now a good neighborhood. The community would have free riders who just owned but also thousands of people doing some of the work of boosting property values. Who decides it’s PNL that should be internalized versus PNL that wasn’t their work? The local alderman? I don’t know of any accounting method to decided “earned” versus “unearned”.
Regardless LVT isn’t a realistic tax in politics. It’s only something people think about in San Francisco and only 4-5 areas in the States have land values high enough to consider it. And California already has the stupid proposition that fixes your property prices to when you bought it. So LVT in San Francisco needs to normalize property taxes before taking the next step of LVT.
IMO they also miss out that land speculation has value. Someone buying a rapidly rising land area and building a parking lot to sit on for 10-20 years can be good for the community. Brickell is an example of this. You do want to keep some parcels in a growing community not built so you can build bigger later without needing to tear down an expensive building.
I would disagree that going to 80-20 Georgian is a good idea. But it probably should be more than it is today.
I am skeptical of how much of it sounds too good to be true, but I think that if the theory holds it would be good. Ideally, to actually test it empirically, and to avoid shocks with suddenly crashing land prices, I'd like to see something like 1-2% increased LVT (and ~1-2% decrease in every other tax simultaneously) every year on an ongoing basis, and then we'll have decades to actually see how it works, what goes wrong and what doesn't. But I think the economic theory is very sound and needs to be actually tested in real life to actually verify or debunk, and to refine and see what epicycles it might need to avoid the possible problems that a naive version would cause that a clever version might not cause.
It can only really be done at the city level. You simply don’t have high land prices outside of a few locations. It’s basically not relevant for most of the US. You don’t have land appreciation in most places. I guess you could still do it elsewhere but then you would basically be doing wealth confiscation from farmers instead of assets in general.
San Francisco could do this and replace other taxes because land prices are a significant portion of wealth.
Isn’t a big part of this discussion the actual percent value of the LVT? Like the point of it is, I gather, cheaper property tax on heavily improved property in hot markets (because improvements aren’t taxed) but higher tax rate on unimproved property in hot markets. This makes sense to me, but it’s unclear to me whether Georgists are anticipating a base-rate LVT that is higher or lower than your typical county property tax rate, and what would be done with agricultural land.
If higher, then it seems both pointlessly punitive on “cold” markets where there is unlikely to be development regardless, where if it’s lower then it may not actually impact much at all.
Also seems important how assessment works, given that currently assessment mostly just doesn’t, at least where I’m at (properties often sell for several multiples of assessed value).
Old improved land is an area that I am not sure how they could deal with it. In Miami they just blew up the Mandarin Oriental Hotel which was like 10-20 stories to build something much bigger. But the physical investment in the Old hotel is still 100-300 million. Land values have been rising. What’s the tax rate on that? Land values went up enough that it makes sense to tear it down now. But for a while maybe the property was worth 300m with 200m in capex. Raw land was worth 280m. Now the raw land is worth 400m so you blow up the old building.
Even though they have 200m in capex in the property and it’s worth 300m would they be taxed at the raw land value of 280m? Which would have basically zeroed their 200m in capex.
Yeah it would work as you say, but that’s kind of the point, as it forces an even higher amount of development to justify the tax burden, thus pushing such valuable property to ever higher heights. Again whether or not this is crippling is a matter of the tax rate rather than the tax system I think
Wouldn’t the LVT discourage development in area with expected high land appreciation? Building too early in a neighborhood means your capex gets zeroed by rising land values
Ordinary property tax that we already have would be even worse in that case, because the developer would be paying higher tax from the land appreciation plus the tax from their improvements. LVT just removed the improvement tax.
No it wouldn’t. Ordinary property taxes do total value. A LVT does land (presumably at a high rate).
In this case a property tax would do the tax at market value as built. Existing Capex can get hurt bad in a lvt.
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