Land Value Tax and Coherent Ownership for Civilization

In a perhaps-not-weird coincidence, the villains in both of the children’s programs I saw today were land developers.

So I was thinking yesterday about the need for coherent ownership to ensure that countries remain nice places that serve the interests of their inhabitants, (the potential implications of which you can probably work out for yourself, especially if you’ve eve had to actually deal with a divided-ownership situation like an HOA,) and I got to thinking about the possibilities of the Land Value Tax (LVT) as a force for civilization and long-term efficient land management.

The LVT differs in important ways from a property tax, and should be the basis for our American tax system, rather than income tax + everything else under the sun, so I’m going to go into a bit of detail.

The LVT is a tax on the unimproved value of the land–not the value of the buildings, gardens, or other things you might build there.

By contrast, a property tax is assessed against the value of the whole property, including all of the stuff on it.

What this means:

Let’s say that you and your neighbor both own a chunk of land. Like most adjoining pieces of land, they’re basically identical–you have a few more trees, he has a few more rocks, but nothing major. Under an LVT, you each owe the same amount in taxes–a percent based on the sale value of the land itself, which is of course identical for the two pieces. If you build a nice house on your land, and your neighbor leaves his as weeds, you still get taxed the same. If you let your house become a decrepit ruin while your neighbor builds an apartment complex, you still get taxed the same.

When you are making better use of your land than your neighbor, you make more money than he does. When he makes better use of his land than you do, he makes more money.

Now, let’s suppose we have a property tax (as we currently do.) You and your neighbor start out with identical plots of land, and so equal taxes. But when you build a house and he leaves his as weeds, the value of the house is added to your taxes–and you now pay more taxes. If you let your house become a decrepit ruin while the neighbor builds an apartment complex, you now pay less in taxes and he pays more.

In other words, under a property tax, making better use of your land results in higher taxes, while making worse use of the land results in lower taxes.

The LVT lines up the landowner’s and society’s interests to incentivize efficient land use. The property tax puts land owners and society in conflict, by punishing landowners for making improvements to their properties.

America’s inner cities are a disgrace. I cringe to think of foreign tourists visiting DC and wandering into Anacostia, or one of its other slums. I cringe to think of anyone living in these places. (After you read that, go watch “Holes in my Shoes”–it’s available on Netflix–and consider the important differences.)

Washington, DC
Washington, DC
Detroit Book Depository
Detroit Book Depository
Detroit
Detroit

There is no reason why real estate in the heart of American cities should look like this. The value of the land is high–virtually identical to the value of land with mansions, skyscrapers, or factories–but these properties have been left, instead, to fall apart.

And while gentrification is generally supposed to be bad for the people involved, long term, I suspect that coherent land-use strategies would lead to greater general prosperity, benefiting the community’s poorer members by providing jobs and nicer housing.

If society wishes, certain tracts of land may be set aside for nature parks (as they currently are) or for use by people who may not wish to live in cities, like, say, the Pygmies or the San.

 

I have often commented that after centuries of decay, the only way to get a nice city is to bomb it to the ground and then rebuild from scratch:

Quang Tri City, Vietnam
Quang Tri City, Vietnam (PDF)
Shibuya, Tokyo
Shibuya, Tokyo
Ho Chi Minh City / Saigon
Ho Chi Minh City / Saigon
Berlin
Berlin

Obviously it would have been superior for the people if someone had moved all of them out of the way, first.

At least an LVT would help incentivize individuals to keep their own parcels nice. To keep an entire city nice, to deal with problems that emerge after centuries of use, like streets that can no longer handle the amount of traffic trying to use them or antiquated sewer systems, probably requires something else, like some form of coherent ownership that can step in and take control of whole neighborhoods, at least once a century.

Perhaps a workable system would be for one individual or small collection of individuals to “own” a city, but to lease individual chunks of it for one year, ten year, or longer chunks of time. During that time, the leasee would be free to modify the property however they saw fit, and the terms of the lease would mirror those of the LVT. When large chunks of the city eventually need updating, the owner could decline to lease out relevant parcels until they have had a chance to make the necessary changes.

Speculative ideas are speculative.

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21 thoughts on “Land Value Tax and Coherent Ownership for Civilization

  1. Sounds pretty good. I often think the city being a company wherein you have to buy land, so the stock and the deed come together. This way the deed/stock holder has the private property owner’s incentive to improve his land and an incentive to collaborate in city wide improvements. But my idea could be too complicated. LVT sounds simple, and something an existing city could implement now.

    Liked by 1 person

    • That’s basically how an HOA functions; they aren’t bad, but in my (very limited) experience, the divided ownership has certain downsides. My own instinct is not to live in HOA-controlled areas if I can, but then, those places have their own issues.

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  2. I don’t like HOAs either.
    Stock holders have the incentive to increase the value of the stock, which sometimes results in them playing short term games to the detriment of the company.
    Private property owners have the incentive to increase the value of their property, but they sometimes will either be hurt by a project, like building a bridge (or other infrastructure) that will take up part of their land or disadvantage it in some way.
    If there were some way to balance the two incentives outcomes in a city would be better.
    Ideally, if the property value might be harmed, but the project was good for the city, the loss to the property owner would be offset by what accrues to him via stock.
    An HOA, I think, is a lot of blue hairs coming up with thousands of rules, which the express purpose of keeping everything the same so that resale value stays up. It ends up being lots and lots of costs to the owners for a theoretical gain not often realized.

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  3. DC, is an interesting case. A wave of so-called gentrification has been sweeping across the city for some time, forcing the poor and criminal into retreat.
    Now, even Anacostia is hosting its first enclaves of yuppies, the wave swiftly advancing beyond them.
    In a little more time, those who aren’t salaried professionals won’t even be able to live inside the beltway.
    DC has actually reached a tipping point. It is no longer majority black.

    In this worldwide decline it is a bit like a falling man bringing his hands to his face before he hits the ground. First he protects his face and vitals, and that is just where all the rich people flock as nations falls apart.

    Liked by 1 person

  4. Now, let’s suppose we have a property tax (as we currently do.) You and your neighbor start out with identical plots of land, and so equal taxes. But when you build a house and he leaves his as weeds, the value of the house is added to your taxes–and you now pay more taxes. If you let your house become a decrepit ruin while the neighbor builds an apartment complex, you now pay less in taxes and he pays more.

    In other words, under a property tax, making better use of your land results in higher taxes, while making worse use of the land results in lower taxes.

    But I think the building itself adds value that exceeds the additional taxation. If it weren’t, no one would build anything.

    The LVT is unfair to real estate investors, who find their land appreciation has been taxed away . Imagine someone invests in a blighted city, the land value goes up, but the investor can;t keep any of it. Such policy discourages investment.


    I have often commented that after centuries of decay, the only way to get a nice city is to bomb it to the ground and then rebuild from scratch:

    That didn;t work so well in iraq.

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    • Blighted cities: the idea is to avoid blight in the first place.

      Baghdad: Remember scale; not only did we not drop the equivalent of a nuke on Baghdad, it hasn’t been 40-70 years. Oh course, some places will always be meh.

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    • That’s like saying that car manufacturers wouldn’t build cars if the value of land their factory occupies didn’t go up in value.

      Capital is capital. Land is land. Capital is produced by human effort, Land isn’t.

      Demand for land can be shifted, just like it is for capital. But, capitalists have to supply capital to turn that demand into an income. Land owners merely need to possess valuable land. No work, effort enterprise required.

      Surely it is unfair that work effort and enterprise is penalised by taxation? As Land is by not created by the effort of men, then is it not fair to share it’s value equally?

      If you invest in capital, a LVT does not tax that, so there is no disincentive to invest. But, if you have to pay an LVT when you occupy valuable land, then you will have to invest in productive capital in order to pay the tax. Or someone else will, because LVT is set by market rents.

      LVT is merely the public collection of rents that would otherwise be turned into rental income or selling prices.

      So, any criticisms of LVT on efficiency grounds must also apply to private landlords. Only there aren’t any because everyone agrees, rents are the best way of allocating scarce resources.

      Liked by 1 person

  5. Eliminate HUD by taking its funds and combining them with the Department of Education funds and create school vouchers. Eliminate the connection between where you live with where your kids go to school and the cities will re-build themselves.

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    • I’m afraid I don’t quite follow your logic. People like living near the schools their kids attend because it minimizes their commutes; spending an hour+ driving a kid to school every day is not fun for parents or kids. I agree that “bad schools” are one reason people avoid living in inner cities, but crime, housing costs, and and lack of safe places for children to play are also issues.

      Hud probably does do things that distort the housing market, but school vouchers seem likely to distort the education market. The stories I have heard about places where vouchers have been tried go like this:
      Private school calls a meeting of the parents of kids already enrolled, explains how to apply for vouchers. Parents apply for vouchers; get vouchers. Private school increases tuition by cost of voucher.

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      • “Bad schools” and the other issues you mention are very much interconnected.

        I am not talking about the current voucher programs. I want a 100% federal and state voucher for education. Every dollar spent on education would follow the child. We would need a constitutional amendment that protects the right to the education voucher. Every school would be eligible; all white schools, co-ed schools, all female or all male schools, all black male schools, Catholic schools, evangelical schools, etc. Want to send your child to a school that emphasizes football, go ahead; emphasizes the arts, send them; emphasizes STEM, send them. The only requirement would be that an independent standardized achievement test would be required every couple of years and those results would be published.

        This also allows the peons to have a closer match to what is available to the rich.

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      • The problem with this is that it doesn’t really solve the problem. America doesn’t have “bad schools.” The only problem with American schools is that black and Hispanic students get bad test scores, and after 60 years of school reform, I think this is pretty clearly not a problem with the schools.

        Now, I agree that whites do not want to move to Harlem and send their kids to Harlem schools; letting them live in Harlem but send their kids to all-white schools does improve the situation, but people still do not want to live in Harlem because of the violence and decay.

        Plus, you’d end up with a bunch of unscrupulous con-men (and women) setting up “schools” in black communities, collecting voucher fees, and teaching the students nothing. Parents will vaguely complain about the bad test scores while continuing to send their kids. Occasionally one school will close and an identical one will pop up to take its place. I don’t want my tax dollars subsidizing such scams.

        If your goal is to allow segregation (or segregation based on intellectual abilities), it’s simpler just to allow segregation (or segregation based on mental abilities). Obviously it is not politically popular, but it gets immediately to your goal.

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  6. If your goal is to allow segregation ……..

    My goal is to give all students the opportunity to attend the school that their parent or guardian thinks is best for that child. Allowing this opportunity of educational choice will slow or stop white flight (and middle class black flight) which will slow the creation of desolated urban areas.

    I do not accept the idea some group in the hierarchy should protect people from making bad individual choices in the education of their children. Require publication of standardized achievement test results for all schools and let people decide for themselves. I can accept the pre-emption of individual choice in some areas, determining the safety and efficacy of drugs for example.

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    • It sounds to me like you are a man with a hammer in search of a nail. 😉

      If our goal is the elimination of urban blight, then uncoupling neighborhoods and schools isn’t enough–notice that people who do not have children also do not want to live in bad neighborhoods.

      People with small children don’t want to add an extra hour of commute to their day just so they can live in violent, dirty, crime-ridden neighborhoods.

      If your goal is just school choice because you happen to like choice, well, that’s a different subject. But I don’t see why anyone has a “right” to give my tax dollars to scammers; that achieves nothing of worth, especially since people have already gone to the effort of creating a good school system.

      If it ain’t broke, don’t fix it.

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      • I guess I must be mistaken in my belief that there is a connection between the quality of a neighborhood and the quality of the schools.

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      • The connection is that bad neighborhoods are full of children who are violent, unpleasant, and have bad test scores. Of course people don’t want their kids to go to school with unpleasant kids. I agree completely on that point, and don’t think anyone should be forced to go to a school full of horrible students. I also agree that a desire not to be in districts where their kids would have to go to school with unpleasant kids is a major factor for a lot of people. I’m just saying that these folks also don’t want to live next to such people, either.

        I think we need to abandon this notion of “bad schools”, though. That puts the blame in the wrong spot. The schools aren’t bad. The students are bad.

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