A Change to America's Tax Code Could Fix the Housing Crisis

[M II A II R II K]

Tax The Land


Mar 4, 2022

By Jerusalem Demsas

Read More: https://www.vox.com/policy-and-polit...housing-crisis

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Millions of people want to live in New York City, Los Angeles, Washington, DC, or Seattle, but local tax regimes actually punish people for investing in their property. When people improve their property, either by adding a new room or building an entirely new structure like a multi-story apartment building, they’ll pay higher property taxes. But this isn’t just a big-city problem. In small towns, vacant lots contribute to decline, and if there’s no valuable structure on a property, its delinquent landlords likely only pay a nominal property tax. This both lowers tax revenue and hurts neighborhood quality for everyone else.

- Taxing land value means separating out what land is worth without any of the improvements sitting on it (like homes or industrial plants). Most Americans are familiar with property taxes that tax the value of their homes and the land they sit on as one. As New York University economist Arpit Gupta explains, part of what makes land taxes so attractive is that “there should be no economic inefficiency” if you are able to tax “true land rents.” — The LVT also has an appealing underlying moral framework: The luck to own a piece of land that happens to appreciate, say you bought a house in San Francisco before the tech boom should not come with it the ability to extract rents without providing value. In other words, since people who own land aren’t actually responsible for it increasing or decreasing in value, it’s pretty absurd that they get to accrue all the benefits of owning a piece of land without having to do any work for it.

- Under a land value tax system, proponents say property owners would be clamoring to be allowed to develop their land more intensely leading to more homes being built. Here’s the theory: Taxing land reduces the profit that comes from just owning a piece of property. Instead, you are incentivized to put that land to work. Let’s take a plot of land near Times Square. That land is so valuable, basically anything you do with it will turn a massive profit so no need to develop it for its most valuable use. However, if a land tax were to be levied, the owner of that land would need to make sure that the property on that land was actually profitable since the government is taxing away some or all of the land rents that could be charged. — “It turns NIMBYs into YIMBYs,” explained economist Noah Smith, who has written about land taxes. “You leverage the same toxic local politics that are now creating NIMBY-ism, you leverage for YIMBY-ism because now you have people wanting to build stuff.”

- In Allentown, Pennsylvania, the system worked! According to a 2019 Strong Towns article, after the city adopted an LVT (through a split-rate system that still kept some property taxes in place) in 1996, “construction returned to the city: the number of taxable building permits surged past neighboring Bethlehem, market investment returned and capital improvement reappeared in city budgets. ... The losers in this trade were absentee owners of vacant lots, who had to shoulder much more of the burden.” — Sen. Pat Toomey (R-PA) is quoted touting the benefits of the tax: “The number of building permits in Allentown has increased by 32 percent from before we had a land tax.” So if this change to our taxation system is so simple, why don’t more cities implement it? Well, property tax reform is the third rail of American politics.

- But beyond the political issues, there are also technical concerns: Firstly, valuing land separately from the improvements to it is not so simple, though proponents argue it can be done. Secondly, implementing a land tax right now, while fair in the medium and long term, could feel drastically unfair in the short term to property owners who paid a premium for their lots because of the value of the land only to see it depreciate in value as a new tax gets implemented. — So why is this meme becoming so popular (at least among some online communities)? Lars Doucet, a prominent land value tax proponent, explains that a big part of the reason is that for a long time the automobile made sprawling suburban development possible. That meant people could still access valuable labor markets even if they couldn’t afford to live near their jobs (as long as they were willing to suffer long commutes, that is). “Now we’ve run out of suburbs,” Doucet argued. “We can’t push any further through expansion.”

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[JManc]

This is why in rural areas, homeowners may remodel the interior but neglect the exterior so the tax assessor thinks the house is a dump and keeps their tax burden lower. Saw this often in NY.

[kingkirbythe....]

I think this podcast dovetails nicely into this topic.

https://podcasts.apple.com/us/podcas...=1000553396439

Why is housing so expensive in America? With Jenny Schuetz

[C.]

This is interesting. I'm not sure there is a magic bullet because low-income areas close to downtown may start paying a higher tax burden.

[jmecklenborg]

No.