>This proposal doesn’t involve any forced moves, owners only auction when they want to sell their land.
The article already lists two counterexamples that aren’t uncommon situations...
>There will be situations where the valuation growth from point 5 outpaces the true value of the house. The owner can update the land value by putting the land up for public auction, but they have to win that auction fair and square. If they win the auction, the land value is updated to their new bid, but no money changes hands (essentially, they pay themselves for the bid).
So if my land value has ratcheted up faster than its true value, my choice is: get gouged on taxes, or roll the dice on losing control of the land. The odds of this problem grow over time, so people caught by this will tend to be 1) long-time residents and 2) older.
> Fourth, auctions are a fairer way to allocate land, preventing families from passing land wealth down the generations without updating their valuation.
So if I want to keep my parents’ house in the family after they die, I again have to roll the dice. (I also wonder if this tends to be regressive since wealthier families have a greater ability to bid high for sentimental reasons and absorb the extra tax burden, so the folks featured in news stories as victims of this policy will be those of more modest means—this is more speculative though.)
In neither situation does the current owner actually want to sell.
Note that these sorts of situations are perfectly foreseeable from the perspective of owners. They know precisely what they will pay each year in taxes based on their bid. It’s prudent to re-value the home every once in a while if taxes drift too much, but the owner can keep the same schedule if they want. They can also use the public listing of local bids, so they know what to bid and can feel pretty safe that they will keep their home. They truly have the highest valuation of all the bidders in most cases.
The thing is, every system of land ownership faces a tradeoff between investment efficiency and allocative efficiency. This is a topic in the next post, where I’ll discuss why the best growth rate of taxes closely follows the true growth rate of land values. Essentially, you want people to pay their fair share. Unfortunately, any system that has taxes move along with land values will risk “taxing people out of their homes”, there are legitimate ways to do land policy on either end of the spectrum.
The neat thing about this system is that you can choose where on the spectrum you want to be! If you want high investment efficiency (i.e. people can securely hold their homes and don’t have to worry about re-auctioning) then just set the tax growth rate to zero; that way the owner pays a fixed amount each year indefinitely. In net present value terms, the indefinite taxes will be finite and the tax rate can be set to adjust this amount up or down.
If for some reason you want allocative efficiency, you can crank the growth rate high enough to trigger annual auctions. This is bad for physical land, but this could be valuable for other types of economic land like broadband spectrum.
>This proposal doesn’t involve any forced moves, owners only auction when they want to sell their land.
The article already lists two counterexamples that aren’t uncommon situations...
>There will be situations where the valuation growth from point 5 outpaces the true value of the house. The owner can update the land value by putting the land up for public auction, but they have to win that auction fair and square. If they win the auction, the land value is updated to their new bid, but no money changes hands (essentially, they pay themselves for the bid).
So if my land value has ratcheted up faster than its true value, my choice is: get gouged on taxes, or roll the dice on losing control of the land. The odds of this problem grow over time, so people caught by this will tend to be 1) long-time residents and 2) older.
> Fourth, auctions are a fairer way to allocate land, preventing families from passing land wealth down the generations without updating their valuation.
So if I want to keep my parents’ house in the family after they die, I again have to roll the dice. (I also wonder if this tends to be regressive since wealthier families have a greater ability to bid high for sentimental reasons and absorb the extra tax burden, so the folks featured in news stories as victims of this policy will be those of more modest means—this is more speculative though.)
In neither situation does the current owner actually want to sell.
Note that these sorts of situations are perfectly foreseeable from the perspective of owners. They know precisely what they will pay each year in taxes based on their bid. It’s prudent to re-value the home every once in a while if taxes drift too much, but the owner can keep the same schedule if they want. They can also use the public listing of local bids, so they know what to bid and can feel pretty safe that they will keep their home. They truly have the highest valuation of all the bidders in most cases.
The thing is, every system of land ownership faces a tradeoff between investment efficiency and allocative efficiency. This is a topic in the next post, where I’ll discuss why the best growth rate of taxes closely follows the true growth rate of land values. Essentially, you want people to pay their fair share. Unfortunately, any system that has taxes move along with land values will risk “taxing people out of their homes”, there are legitimate ways to do land policy on either end of the spectrum.
The neat thing about this system is that you can choose where on the spectrum you want to be! If you want high investment efficiency (i.e. people can securely hold their homes and don’t have to worry about re-auctioning) then just set the tax growth rate to zero; that way the owner pays a fixed amount each year indefinitely. In net present value terms, the indefinite taxes will be finite and the tax rate can be set to adjust this amount up or down.
If for some reason you want allocative efficiency, you can crank the growth rate high enough to trigger annual auctions. This is bad for physical land, but this could be valuable for other types of economic land like broadband spectrum.
Death is foreseeable?
(Well, okay, yes, but the timing often isn’t.)