3
$\begingroup$

According to https://en.wikipedia.org/wiki/Land_value_tax:

Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay,

That doesn't make any sense. If more people want to live in a particular place, rents will increase.

rather than on landlord expenses, preventing landlords from passing LVT to tenants.

Only if there's somewhere else that tenants want to be, that also has lower rents. The real estate boom in San Francisco shows that when people with lots of money really want to live in a particular place, rents rise.

Thus, what stops the Land-Value Tax be passed on to tenants (in the situation where demand outstrips supply, and the government decides to increase the LVT)?

$\endgroup$
0
$\begingroup$

Supply response causes a change in prices, the incidence which is shared between the producer and the consumer. As land is defined as everything not supplied by human effort, thus perfectly inelastic, there is no supply response so the incidence of a LVT falls only on the landowner.

In practice the value of land is the difference in productivity/average wages between different locations. A landowner cannot therefore pass on the tax in higher prices because this will simply lead to the abandonment of valuable land to where land is valueless. As there is always marginal land, even in somewhere like the US, the LVT has no effect on rents, though it would reduce rental incomes, thus selling prices.

This is also why landlords change charge more than market rent and why a LVT cannot be levied at more that 100% of market rents.

$\endgroup$
  • $\begingroup$ "A landowner cannot therefore pass on the tax in higher prices because this will simply lead to the abandonment of valuable land to where land is valueless." Slowly. Very slowly. Many decades, even. It seems that "you" think that people will move to worthless land just because it's lower cost. As someone who's house shopping at the moment, I can tell you that's not true. Owners can -- and definitely do -- charge a rent premium in desirable neighborhoods. $\endgroup$ – RonJohn Sep 4 '18 at 2:35
3
$\begingroup$

Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay,

That doesn't make any sense. If more people want to live in a particular place, rents will increase.

And if rents increase, then obviously tenants are prepared to pay more. If they aren't willing to pay increased rents, then they don't really want to live there more than another place. I.e. your statement is entirely consistent with the statement that you are criticizing.

rather than on landlord expenses, preventing landlords from passing LVT to tenants.

Only if there's somewhere else that tenants want to be, that also has lower rents. The real estate boom in San Francisco shows that when people with lots of money really want to live in a particular place, rents rise.

I think you missed the point here. Presumably landlords are already charging what the market will bear. How does a Land Value Tax (LVT) change what the market will bear? As it's a tax on landlords, obviously it has no direct effect on tenants. The tenants are not prepared to pay more rent as a result of the LVT.

If rents will go up by \$100 a month without an LVT and \$100 a month with an LVT, then landlords can't pass the LVT to tenants. That's true even if the \$100 is enough to pay the LVT. Without the LVT, the landlord would have raised the rent and kept all of the money (minus income taxes, etc.). With the LVT, the landlord pays the LVT and may still have to pay more income taxes (depending on the deductibility of the LVT).

The only way that an LVT can influence rents from the landlord side is if it causes the number of units available for rent to either increase or decrease. In the long term, that happens. Landowners can choose to build more or fewer units on their land. But in the immediate term, the number of units is fixed. A landowner can't take a single family home and instantaneously convert it into a hundred-unit apartment building, even if there is sufficient land to support that. Thus the LVT does not change unit availability or the rent that tenants are willing to pay.

Now, it is possible that the LVT enables spending that tenants find valuable. And that spending causes demand and therefore rents to increase. But that spending would be just as valuable to the tenants if it were financed by a different tax with less impact on landowners. Of course, tenants might be negatively impacted by that tax, e.g. if they pay it. But those effects are aside from the impact of an LVT on landlords.

The LVT itself does not increase rents in the short term. It may increase rents in the long term if it drives away landowners by making some places economically infeasible to rent. But that assumes that landlord profits are less than the LVT. Or landowners may choose not to expand the number of units in the long term. Or the LVT may finance a benefit that increases the value of the units to tenants.

So the landlord can only pass on the LVT if tenants benefit from the spending financed by the LVT, shifting the demand curve such that tenants will pay more. So the more that the LVT finances benefits for tenants, the better able the landlord will be to pass on the LVT.

If those things don't happen, the landlord can't pass on the LVT. The landlord can only get the regular market rent. That may be an increasing market rent, but the increase is not due to the LVT. It's only determined by movement in the tenants' demand curve, which is not directly impacted by the LVT.

$\endgroup$
0
$\begingroup$

There's the theory, and there's the reality. Let's say there's an across-the-board rent tax of \$100 per property.

The theory is that if landlords could just arbitrarily increase rent by \$100, they would've done it already. They haven't, therefore they can't.

The reality is that if every landlord in the city increases rent by \$100 at the same time and with the same excuse, and if the inconvenience of moving out of the entire city outweighs the burden of paying an extra \$100 in rent each month, then (most) people will pay the \$100 and the landlords will have successfully passed off the tax to their tenants.

Over the long term, and across large scales, things will tend to even out such that landlords do end up paying for it -- the \$100 extra they get now will just cut into future increases they could've otherwise made. But in the nitty gritty, dirty reality of people not being willing to move simply because their landlords are trying to get away with passing off the tax, the tenants can end up (at least temporarily) footing the bill regardless.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.