> rich have been transferring money from the poor to themselves at a dramatic rate
Anyone not familiar with it needs to look up Georgism.
This transfer happens primarily via housing costs and rent payments.
The stratification of the rich happens via investment opportunities, but the core underlying mechanism for the majority of the population is via housing costs and Ricardo's law of rent.
Yeah, you can't have an realistic economy that will eventually inflate small, entry-level houses to $1mm+ and college costs to the $100k's but still have jobs paying $10-20/hr (or less). Any kid who does the math will realize how hopeless that economy is. Even if you scrape by, one emergency turns you into a debt slave.
Housing needs to stop increasing in price for a number of generations. Surely the rich can find someplace else for their money.
For housing to stop increasing in price, a lot of it has to be built.
The YIMBY movement is pushing in the right direction, but doesn't have the political power that they need. Particularly in California. And, as long as they don't, those with houses will continue to win against those who don't.
> For housing to stop increasing in price, a lot of it has to be built.
False.
You can depress the land-based monopolistic component of housing via a land value tax. If speculating on land values stops being a good investment strategy, the price will drop.
Many economists/nobel prize winners have been quietly pointing this out for over a century at this point. Here is a pretty good primer: https://www.youtube.com/watch?v=smi_iIoKybg
As long as there are more people needing housing than housing, prices will be high. California has such a shortage, and the people side of the equation is going up faster than housing is constructed. Making the problem worse over time.
A land value tax could indeed help with housing costs - but that's because it encourages development. It is the construction that makes the really big difference here.
Correct. Thank you for clarifying. Just want to point out that this is different from your initial claim.
> housing to stop INCREASING in price
Land value tax would immediately start decreasing the housing price. You are correct that it would stay high until demand and supply rebalanced, but it would start decreasing.
In fact, you actually pointed out a second mechanism that could lead to decreasing prices in your comment: a decrease in demand. As you mentioned, that decrease in demand could come from a decline in population. However, it could also come from a decrease in that population's capability to match their existing level of spend. People can't spend more than they have so if that amount goes down then prices would also have to go down as a result.
In fact, prices for housing are far more sensitive to changes in demand than for normal goods. Land supply supply is fixed and cannot increase. But likewise, it cannot decrease either and this is what makes land value tax so amazing! Normally, a decrease in price would lead to a decrease in production, but with land, supply never changes so you get a larger decrease in price.
Economists refer to this property as having zero deadweight loss, and it is what makes land value tax the most efficient theoretical tax possible as was mentioned by Adam Smith over 100 years ago. Effectively, you can tax land up to its full theoretical rental value and supply will never change.
Land is an economic edge case. It's like a massive glitch in normal economic assumptions. And that glitch is literally the largest asset class globally and makes up the majority of bank lending. It needs special attention that it's not currently being given.
Practically speaking, land value tax advocates are not proposing full rental capture, but rather first replacing property taxes, and slowly increasing the tax rate while decreasing other taxes.
No, my initial claim is correct. Per https://en.wikipedia.org/wiki/California_housing_shortage, "California needs to double its current rate of housing production (85,000 units per year) to keep up with expected population growth and prevent prices from further increasing...".
A land value tax by itself would not suffice to immediately change this dynamic.
I think we disagree here then. The article you linked assumes no land value tax so I don't think it's relevant.
My claim that land value tax would decrease property prices does admittedly depend on the tax rate. Do you dispute the fact that there is some tax rate where house prices would decrease? For example, going above 100% tax rates would actually force people off land so to me this seems obvious because clearly nobody would want to hold property if it cost more to hold than they could afford... So obviously there is some tax rate lower than 100% where property prices would start to decrease even accounting for other growth factors. Heck, you could even ignore it being a land value tax. This would happen with a property tax as well.
Does that make sense?
Keep in mind that the number that you quote there in the article would obviously change depending on the price of housing. People move out of cities or countries all the time due to cost of living.
EDIT: this seems pretty straightforward to me. It's a net present value calculation with an annual payment. Obviously there is some annual payment where net present value will decrease...
My claim isn't about housing prices. It is about the cost of housing. True, a land value tax transfers value from property owners to the government. But paying that tax represents a cost of housing. Either directly - you're paying tax on your property - or indirectly in the form of rent.
In theory this is net neutral on costs. In practice, it is likely to be an increase immediately because housing prices tend to be "sticky". So it takes time for land value to drop because of the tax.
Ahh that makes sense then. Yep agreed! I got confused because I usually hear people refer to housing prices as property purchase prices, and housing costs to the continuous component. I would have phrased this:
> For housing to stop increasing in price, a lot of it has to be built.
As
"For housing costs to stop increasing, a lot of it has to be built."
It's difficult and ambiguous either way though... Costs being plural and price being singular is maybe what threw me off as well?
This doesn't do anything to disprove the above commenter's point. Land value taxes incentivize constructing denser housing, because that's the only way to stay profitable when owning valuable land.
If there's 1 million people that want to live in a city with only 700,000 housing units, the only way to keep housing affordable is to construct more housing. No amount of regulation or tax changes will overcome the pidgeonhole principle.
LVT doesnt decrease housing prices by itself. It transfers the rent from landlords to the government but without housing expansion rent price doesnt change.
There are alternatives: make it expensive to own a house/apartment unless you physically live in it.
It would benefit ordinary people, therefore it is unlikely to be implemented for long if ever.
I think a common mistake (and one you’re doing here) is implying those things are fixed measurements. The common definition of a “small, entry-level” house has dramatically inflated over the last 70 years. When people compare to their parents generation, it’s not at all apples to apples — those houses were about half the size and much, much shittier and cheaper.
Similarly, college has become a thing that went from <40% of high school graduates prior to the 1950s, to 80-90%+ today. The demand has increased enormously, so of course prices has gone up.
Isn’t the point of markets to provide feedback and change behaviors? Live in a smaller house, go into trades instead of college, etc. (like many in the last generations did, in reality). Instead, everyone is trying funnel into the patterns that had the most success in the past, leading those to become oversubscribed and not working as well.
Anyone not familiar with it needs to look up Georgism.
This transfer happens primarily via housing costs and rent payments.
The stratification of the rich happens via investment opportunities, but the core underlying mechanism for the majority of the population is via housing costs and Ricardo's law of rent.