The author mentions Decentraland. The whole point of Decentraland, which is a crypto metaverse, was to make land prices go up. They didn't. Decentraland is boring and nobody goes there. But it does work, and it's up and running all the time. There are other crypto metaverses. Most of them never got beyond the hand-waving stage or the occasional demo of a small virtual world, but that didn't stop them from trying to sell overpriced land. Despite all the noise from the metaverse crowd, few of them got very far on implementation.
There's Second Life, which is a single-tax system. You pay Linden Lab a fixed fee per square meter, regardless of what you're doing with the land. Land prices vary widely. Waterfront land is usually expensive; land on rocky plateaus far from roads is cheap. The supply of land is not limited; for a standard monthly fee, you can get another server provisioned with more land for you. You can buy land and rent it as raw land or build on it and rent houses or apartments, so it works economically like real land. Despite doing things the way this author likes, Second Life has overpriced desirable land held off the market to keep prices up.
Virtual economy theory is interesting. It's discussed in various game dev books.
But this paper is too much "_ is the answer. What was the question?"
There are a few real-world cities in the US which tried a single land tax. Here's how that worked out.[1]
> The author mentions Decentraland. The whole point of Decentraland, which is a crypto metaverse, was to make land prices go up. They didn't. Decentraland is boring and nobody goes there. But it does work, and it's up and running all the time. There are other crypto metaverses. Most of them never got beyond the hand-waving stage or the occasional demo of a small virtual world, but that didn't stop them from trying to sell overpriced land. Despite all the noise from the metaverse crowd, few of them got very far on implementation.
We are in agreement. I thought the crypto metaverses were stupid and said so loudly at the time and predicted they would fail for many reasons; the point about land speculation with crypto games is that charging for the right to upload UGC is literally the dumbest idea in the world.
The difference between a crypto metaverse and the real world is you can opt out of existing in any individual virtual world. This is all mentioned in the article.
> The supply of land is not limited [in Second Life].
This is mentioned in the article.
> Despite doing things the way this author likes
> You pay Linden Lab a fixed fee per square meter, regardless of what you're doing with the land
A fixed fee per square meter without regard to land use or location is literally the opposite of the system I have described.
As for evidence real-world cities, you might observe from evidence real world cities that have done the opposite of an LVT -- proposition 13 in California for instance. And you might notice states with very high property taxes (an imperfect tax to be sure, but one that definitely puts a higher holding cost on land, despite the inefficient tax on buildings).
Tell me, is housing more affordable in states with high property taxes, or in states with very low property taxes?
Cranking up property tax or land tax still sucks. Sure, maybe you can buy land now, but what if you want to live on it? Your house doesn't earn you income (i.e. what you build on your land is not "productive"), so you're stuck paying taxes on something that doesn't give you any fiscal value.
In practice, this doesn't help housing crises very much, but it _does_ increase wealth disparity! People who could previously afford a home now have to sell their property and either rent from somewhere, or buy a cheaper, presumably worse property.
The increased property taxes also get passed from landlord to renter, up to what the market will bear. This is also bad, because it significantly increases the cost of living.
Overall, there's no direct relationship between more expensive/less expensive housing and whether land/property is taxed. It's usually a challenge of efficient zoning etc.
Now, one alternative that I'm interested in would be an "surplus land tax", i.e., if you own a property for the purposes of living on it, there is minimal or no taxation. Then if you buy more property for some reason, the tax is significantly higher (why do you, as an individual, need more land?). This discourages people from owning a surplus of land, while (hopefully) avoiding the increase in wealth disparity. If you want land for the purpose of a business, the revenue from the business should ideally cover any applicable land taxes.
> In practice, this doesn't help housing crises very much, but it _does_ increase wealth disparity!
Is your claim that LVT increases wealth disparity? Would it be accurate to assert the flip side of that, that laws like Prop 13 in CA help with wealth disparity? Because, uh, that doesn't seem to be how it's worked out, in practice.
The tax doesn't really increase wealth disparity, as your example with no tax requires someone being able to buy the land in the first place. If the land is still very desirable, the person that owns a very well located plot is extremely wealthy by investing when it was cheap, or having a lot of money. The wealth disparity is still there, just with a different winner.
Your surplus idea has significant problems: First, good luck if you aren't owning a single family home, as then you aren't tax free. Second, that you can still massively speculate by buying the highest valued land you can, in the largest plot possible, and then have the best leverage. So prices of land don't go down, but way up! And that's while the land is also less useful to neighbors, as a large plot with a house in it is far worse than, say, a corner store, a park, or an office. So you are rewarding the land use that is the lowest value to neighbors, while theoretically calling that affordability.
If you want more desirable land to be available to more people, the only sensible alternative is to make more people be able to use it at a time: Anything else is just picking a different favorite way to decide who gets to use it/buy it. It also makes the land more useful in general: The bay area would be much lower balue than it is now if it was occupied by a sole proprietor who is the only one traversing its current streets and buildings.
> The tax doesn't really increase wealth disparity[...]
Counterpoint:
Where I live the land values have, at minimum, 4x'ed in the last couple of decades. This used to be a sleepy little retirement town, where retirees lived far away from the city, where nobody was interested in living except for those retirees -- hence why it was so inexpensive.
Those retirees are now being driven out en masse because they can no longer afford their property taxes.
These people retired on salaries and retirement packages (if they were lucky) from twenty and thirty years ago. They do not have an income beyond that. They are not millionaires, or anywhere close. Often, they're retired blue collar workers, barely getting by. They cannot actually purchase an equivalent property if they sell their own even at the higher rates--
--because they can no longer afford the taxes on it, and all the other properties around them have gone up just as much in value. They were driven up by the vastly wealthier tech types. These people have nowhere reasonable to move.
Bear in mind, we're not necessarily talking about multi-acre properties here, btw; we're talking modest homes that these people have been living in for fifty or more years.
They're being driven out because the much richer folk value their property. And to make matters worse? If they do sell the property, they instantly lose what little tax cap protection they had, so they'll be paying even more in taxes.
How is that not wealth disparity? If the tax hadn't gone up, they'd still be happily living there. They're only being pushed out because the younger, richer folk want their land.
If that's not increasing wealth disparity, then I don't know what is.
That's not a problem with land taxes, that's a problem with the pensioners declaring that they should stop working at what turned out to be an economically unfeasibly low age after we extended life expectancy. Often with crazy stuff like final salary pensions that they obviously never paid anywhere near enough for. That no generation, before, and probably after, will be able to afford to be economically inactive for 20-30 years + the 15(+) years from childhood in unskilled or low skilled jobs.
At least until we (hopefully) make a post-scarcity economy.
Young people used to be able to afford a home at 25. Old people used to be able to afford property taxes in their retirement for their family sized home. The old people are in the same boat as everyone else. It's just manifesting differently for them. And the root cause is having to pay for an aging population, which is them!
On top of that, that home might have been modest when they had a family and a job, now it's extravagant. Now they should downsize out of the family sized home they're occupying with 1-2 people. And they'll still make a ton of money out of it.
Again, this is the first generation that can live like that. On previous generations the family home would have had the next generation living in it by now, instead 1 or 2 people are taking up a huge amount of land and rooms when they could be living in a flat.
By its intrinsic structure LVT discourages speculation.
Georgian proponents would say that this should not happen that pensioners are being driven out because land values don't rise as much because there is no land speculation, and they pay the LVT instead of rent, mortgage and/or property tax.
I think you'll find that even as land values have increased, your local city or county has been slashing tax rates, such that taxes paid have not gone up for these people at all, or only slightly. Heck, if you're in California they're probably paying about $10 in property taxes due to Prop. 13.
To be fair, anyone that wants to know where you live can go to your website (that you put not only in your bio, but even in your nickname) and visit the "about" section. But I doubt parent did that.
Since higher demand results in higher prices, you could rephrase that line as: is housing (and land) more desirable in states with higher or lower property taxes? I think it's mainly unrelated. Other things like available jobs, climate, amenities, and so on seem more important?
I've never quite understood whether the land value tax advocates wanted taxes to be higher or lower on average, or how they expect economic activity to vary with tax rates. They seem to expect tax policy to have large effects all on its own, though, and I'm more skeptical that it will make much difference.
> There are a few real-world cities in the US which tried a single land tax. Here's how that worked out.
It sounds like it kinda sorta worked but not if you have external interference (other governments still levying other taxes, especially property tax on buildings), and not if you implement it poorly enough that people vote you out.
The "problem" I see with it is that governments don't want it to work, because governments are always trying to maximize tax revenue.
Suppose you have an area zoned so you can't build more than 1-story buildings, but to meet local demand you'd need an average of 1.2-story buildings. Institute LVT without changing the zoning and you're still screwed, because a financial incentive to build more housing does nothing when actually building it is still prohibited by law.
Suppose you institute the LVT and get rid of the building height restrictions. Now people are going to build a bunch of 5 and 10-story buildings and quickly solve the housing shortage -- great. It actually works. Now the area needs an average building height of 1.2 stories and the average becomes 2.5 stories. Nobody even wants the 1-story buildings because you have to pay 5 times as much LVT per square foot as the 5-story buildings. Local land is no longer scarce because it's being used so much more efficiently.
So its value goes down, and with it the tax revenue -- the sole source of tax revenue. Then the government has a few options. Option 1, raise the mil rate. But that doesn't work; if you do that people just build 50-story buildings to minimize the tax and the rest of the land becomes abandoned because no one without a 50-story building could afford the tax on it. Option 2, reintroduce artificial scarcity, e.g. ban tall buildings so land becomes artificially scarce again. But now you're back to inefficient land use and thwarting the ostensible benefit of the tax.
Or Option 3, fund the government some other way. Which removes the government's perverse incentive to create artificial scarcity of land to maximize their tax revenue. But then why not just start there? Get rid of the existing perverse incentive (property tax), and the zoning regulations, let housing become affordable as people build until rents fall to construction costs, and fund the government some other way.
Because the primary reason people want the land is to build buildings on it. If you need one acre of land to build one housing unit because of zoning, there will be more demand for parcels of land than if you can build 50 housing units on one acre of land, because in the first case you need 50 times as much land for the same number of housing units.
That doesn't sound right. In the limit, where you're forbidden from building anything on the land at all, the price will tend to zero. I'm not certain the relationship is linear, but if it is then it must be the opposite to what you claim.
> Nobody even wants the 1-story buildings because you have to pay 5 times as much LVT per square foot as the 5-story buildings. Local land is no longer scarce because it's being used so much more efficiently.
Pushing a bunch of people that want to live in houses into apartments is an odd sort of efficiency.
Nobody is required to live in an apartment. All you're doing is not prohibiting apartments and condos from being built.
Also notice the extent to which this is almost irrelevant to the number of single family homes you can have. Suppose you eliminate density restrictions and then 95% of the land area remains single-family homes, but the other 5% has an average of a 5-story building with four house-sized units per floor on it. You have just doubled the amount of housing available, but there are still 95% as many single-family homes as there were before.
In theory this means that 5% of the people who would have had a single family home would now have a condo. But you also only had enough housing for 50% of the people who need it, so in the alternative where you only allow single family homes, 50% of people are homeless. Or, in practice, live with their parents -- and would much rather a condo than that.
> Suppose you institute the LVT and get rid of the building height restrictions. Now people are going to build a bunch of 5 and 10-story buildings and quickly solve the housing shortage -- great. It actually works. Now the area needs an average building height of 1.2 stories and the average becomes 2.5 stories. Nobody even wants the 1-story buildings because you have to pay 5 times as much LVT per square foot as the 5-story buildings. Local land is no longer scarce because it's being used so much more efficiently.
There would be an equilibrium. If the need is an average of 1.2 stories, why would developers build until there is 2.5 stories? Yes, with a 10 story building you pay less LVT per apartment, but if nobody buys or rents those apartments, it's still cheaper to build a, say, 3 story building. Or whatever the developer thinks they can sell/rent.
> So its value goes down, and with it the tax revenue -- the sole source of tax revenue. Then the government has a few options. Option 1, raise the mil rate. But that doesn't work; if you do that people just build 50-story buildings to minimize the tax and the rest of the land becomes abandoned because no one without a 50-story building could afford the tax on it.
The way I understand it, the LVT is 'automatically' set by the land values, hence the LVT name. Of course the government can play with what percentage of the land value the tax is set to, but presumably it would be very unproductive to set it higher than the rate of return of that land in the first place. So even a 'maximal' LVT would be capped (assuming basic economic saneness on the behalf of the government).
So if somebody builds a 50-story building, then there is suddenly an oversupply of housing, and as result land values drop, and thus the LVT a land owner needs to pay drops as well. So you'll find an equilibrium point where somebody maybe wants to pay a higher LVT in order to live in a single-family home on their own lot, somebody else prefers a bit roomier apartments in a 4-story building instead of shoebox apartments in that 50-story building etc.
And likely the developer of the 50-story building will then make a huge loss, because building such an extremely tall building is very expensive, and tends to make sense only where land prices and demand are huge, not in a place where the requirement is an average 1.2 stories.
> Or Option 3, fund the government some other way. Which removes the government's perverse incentive to create artificial scarcity of land to maximize their tax revenue. But then why not just start there? Get rid of the existing perverse incentive (property tax), and the zoning regulations, let housing become affordable as people build until rents fall to construction costs, and fund the government some other way.
Well, that's the crux isn't it: What is 'some other way'? (Almost) all taxes cause economic inefficiency in some way. LVT, proponents claim, is almost unique in not causing any deadweight loss because the supply of land is fixed. So from an economic efficiency point of view, it seems LVT is the (or at least, among the) least bad tax.
> There would be an equilibrium. If the need is an average of 1.2 stories, why would developers build until there is 2.5 stories?
Because LVT doesn't scale with buildings.
Suppose you already have enough housing. More than enough, even. There is a 25% vacancy rate. Units are renting for $2000/month, half what they were before LVT. Of that, $1000 is the amortized construction cost and other upkeep. For a 1-story building, there is also another $1000/unit/month in LVT. They're already losing money because 25% of their units are vacant and they'd need a 0% vacancy rate just to break even. But they also lose money by renting for any less than $2000/month, so they're resistant to lowering rents below that because a large proportion of the units are the existing single-story housing stock.
But the same LVT is only $200/unit/month for a 5-story building and $100 for a 10-story building. The landlord with a 10-story building is still turning a decent profit even with 25% of the units empty. So landlords with a 1-story building start putting up 10-story buildings even though there is already oversupply because they go from losing money to making some, and the vacancy rate increases even more.
There will be an equilibrium where they stop, but by then the vacancy rate could be arbitrarily high depending on how high the LVT is relative to construction costs.
> The way I understand it, the LVT is 'automatically' set by the land values, hence the LVT name. Of course the government can play with what percentage of the land value the tax is set to, but presumably it would be very unproductive to set it higher than the rate of return of that land in the first place. So even a 'maximal' LVT would be capped (assuming basic economic saneness on the behalf of the government).
This is the issue. Land values become quite meager without artificial scarcity in housing, and then the government doesn't receive much revenue from the tax. Since the government wants tax revenue, they now have a perverse incentive to bring about artificial scarcity in housing. Which is the same incentive they have now with property tax, but the premise of LVT is that they're not going to act on it.
> So if somebody builds a 50-story building, then there is suddenly an oversupply of housing, and as result land values drop, and thus the LVT a land owner needs to pay drops as well.
For which the endgame is that land values fall to be level with the ground, and the government either charges more than the land value in tax, or enacts policies to bring about artificial scarcity to increase the land value, or has negligible tax revenue.
> And likely the developer of the 50-story building will then make a huge loss, because building such an extremely tall building is very expensive, and tends to make sense only where land prices and demand are huge, not in a place where the requirement is an average 1.2 stories.
Very tall buildings are very expensive (but also contain a very large number of units to rent out). Medium buildings aren't all that expensive per unit. If you only need 1.2 stories on average and then fill half the city with 5-story buildings, you'd have no scarcity of housing without anybody ever building a 50-story building.
If you're in a place like NYC the developer of the 50-story building is making a lot more money than the developer of a 10-story building notwithstanding the higher construction costs because they're paying five times less LVT.
> Well, that's the crux isn't it: What is 'some other way'? (Almost) all taxes cause economic inefficiency in some way.
In general a broad-based tax so that the rate can be lower and minimize the distortionary effect, e.g. VAT.
> LVT, proponents claim, is almost unique in not causing any deadweight loss because the supply of land is fixed. So from an economic efficiency point of view, it seems LVT is the (or at least, among the) least bad tax.
A head tax also has no deadweight loss but that's not the only criteria. Moreover, if LVT causes land values to go down and then generates negligible revenue, this is a problem unless you find it convenient for the government to have negligible revenue.
> > There would be an equilibrium. If the need is an average of 1.2 stories, why would developers build until there is 2.5 stories?
> Because LVT doesn't scale with buildings.
This has nothing to do with LVT. Unless you're claiming that somehow a LVT would magically cause developers to collectively throw any economic sanity to the wind and build a massive oversupply.
> Suppose you already have enough housing. More than enough, even. There is a 25% vacancy rate. Units are renting for $2000/month, half what they were before LVT. Of that, $1000 is the amortized construction cost and other upkeep. For a 1-story building, there is also another $1000/unit/month in LVT. They're already losing money because 25% of their units are vacant and they'd need a 0% vacancy rate just to break even. But they also lose money by renting for any less than $2000/month, so they're resistant to lowering rents below that because a large proportion of the units are the existing single-story housing stock.
So what this means is that there's enough demand in the area to keep land values at that level, and it's profitable to demolish small buildings and replace them with taller ones. OTOH if there's already an oversupply of housing then the land values would decrease. Eventually you have some kind of equilibrium.
> If you're in a place like NYC the developer of the 50-story building is making a lot more money than the developer of a 10-story building notwithstanding the higher construction costs
Well that's the point yes. In highly desirable places like the center of a big city like NYC, land values are huge and thus an LVT would be very high as well. Out in the boonies land values are low, and so would the LVT be. So people and businesses can choose from a range of options, between cheap land/LVT in the middle of nowhere and expensive land/LVT in the center of the city. Just like they do now without a LVT.
> In general a broad-based tax so that the rate can be lower and minimize the distortionary effect, e.g. VAT.
Unfortunately VAT is highly regressive, so while a modest VAT has a place in a broad based tax regime, it's a very bad idea as the sole tax.
> Moreover, if LVT causes land values to go down and then generates negligible revenue, this is a problem unless you find it convenient for the government to have negligible revenue.
An LVT is unlikely to make cities unattractive for people and businesses, so desirable places would remain desirable despite being saddled with a high LVT. I'd be more worried about small municipalities out in the boonies, they might not get very much revenue from a LVT. Not zero though, there's still value in, say, farmland, or a plot that is located besides a road, and has electrical cabling etc.
It's how LVT operates. You don't pay more if you build a taller building, but you pay a certain amount for the land on a continuous basis, providing an incentive to increase density beyond what would otherwise be rational, i.e. continue building until there are a significant number of empty units
> In highly desirable places like the center of a big city like NYC, land values are huge and thus an LVT would be very high as well.
Under the existing zoning regime it would be high. If people were allowed to keep building then it would just end up full of skyscrapers -- not just Manhattan but also the other boroughs -- until the cost of land fell to the cost of construction.
> Unfortunately VAT is highly regressive, so while a modest VAT has a place in a broad based tax regime, it's a very bad idea as the sole tax.
This is what corporate PR tells you when they don't want a tax they would actually have to pay.
VAT uses a flat rate, but you can achieve a progressive effective rate curve simply by combining it with a UBI.
> An LVT is unlikely to make cities unattractive for people and businesses, so desirable places would remain desirable despite being saddled with a high LVT.
But how does the LVT remain high unless you artificially constrain construction? There is nowhere that replacing every building within 100 miles with a skyscraper wouldn't result in oversupply, so land is never the limiting factor and its price would be capped by the cost of building tall buildings.
You would also have a notable problem in places like NYC: Suppose it costs more to build a tall building, so the land value is e.g. five times higher than it is in a suburban area. But the buildings also have 20 times more units, so you'd have 25% as much government revenue per resident because there are 20 times more of them per unit land.
I think ACT has no thresholds, whereas NSW for example you could own a $5m primary residence and rent it out and maybe 4 $1m appartments (whose land value will be low) and rent those out and pay no land tax. So you can be rich from property and pay no land tax.
It would kick in for larger landlords though but they could avoid it somewhat by having a property in every state.
The author mentions Decentraland. The whole point of Decentraland, which is a crypto metaverse, was to make land prices go up. They didn't. Decentraland is boring and nobody goes there. But it does work, and it's up and running all the time. There are other crypto metaverses. Most of them never got beyond the hand-waving stage or the occasional demo of a small virtual world, but that didn't stop them from trying to sell overpriced land. Despite all the noise from the metaverse crowd, few of them got very far on implementation.
There's Second Life, which is a single-tax system. You pay Linden Lab a fixed fee per square meter, regardless of what you're doing with the land. Land prices vary widely. Waterfront land is usually expensive; land on rocky plateaus far from roads is cheap. The supply of land is not limited; for a standard monthly fee, you can get another server provisioned with more land for you. You can buy land and rent it as raw land or build on it and rent houses or apartments, so it works economically like real land. Despite doing things the way this author likes, Second Life has overpriced desirable land held off the market to keep prices up.
Virtual economy theory is interesting. It's discussed in various game dev books. But this paper is too much "_ is the answer. What was the question?"
There are a few real-world cities in the US which tried a single land tax. Here's how that worked out.[1]
[1] https://slate.com/news-and-politics/2015/05/the-land-tax-wha...