All this to say, land prices represent aggregation effects / density / access / proximity of buildings. They are the cumulative result of being surrounded by positive externalities which necessarily result from other buildings not land. It is the case that as more and more buildings are built, the impact of a single building to its land value diminishes although the value of its land is still due to the aggregation of and proximity to the buildings that surround it.
Yes, this is the standard Georgist position, and it’s the reason why land owners mainly capture (positive and negative) externalities from land use around them, not in their own land.
Consider an empty lot on which you can build either a garbage dump or a theme park, each of equivalent economic value. Under SQ, the theme park is built as the excess land value is capture by the land owner. Under LVT, the garbage dump is built as the reduced land values reduces their tax burden. The SQ encourages positive externalities, LVT encourages negative externalities.
This seems wrong. The construction of a building mainly affects the value of the land around it, not the land on which it sits. Consider the following example in which instead of buildings, we have an RV and a truck, so there is no cost of building or demolishing stuff:
There’s a pristine neighborhood with two empty lots next to each other in the middle of it. Both sell for the same price. The owner of empty lot 1 rents it to a drug dealer, who places a rusty RV on the lot and sells drugs in it. The owner of empty lot 2 rents it to a well-known chef who places a stylish food truck on the lot and serves overpriced food to socialites in it.
Under SQ, who do you think would profit from selling the land now? The owner of lot 2 has to sell land next to a drug dealer that a prospective buyer can do nothing about. The owner of lot 1 has to sell land next to delicious high-status food, and if a buyer minds the drug dealer he can kick him out. Who is going to have an easier time selling? Who is going to get a higher price?
Now, suppose there is a LVT. If the tax is proportional to the selling price of the land under SQ (as it ideally should), which owner is going to pay more tax?
The case of the theme park and garbage dump is exactly the same, with the added complication of construction / demolition costs. An LVT should be proportional to the price of the land if there were no buildings on top of it (and without taking into account the tax itself), so building a garbage dump is not going to significantly reduce your tax payments.
In such a way, a land value tax has a regularisation effect on building density, necessitating a spread of concentration.
There are several separate effects here, if you are a landowner. Under LVT:
You are incentivized to reduce the density in surrounding land
You are incentivized to build as densely as possible within your own land to compensate the tax
Under SQ:
You are incentivized to increase the density in surrounding land
You are not incentivized to increase density in your own land
The question is, which of these effects is bigger? I would say that landowners have more influence over their own land than over surrounding land, so a priori I would expect more density to result from an LVT
This seems wrong. The construction of a building mainly affects the value of the land around it, not the land on which it sits.
That brings up the splitting question.
If two people owning adjacent parcels of land each build a garbage dump, they will in fact reduce both of their taxes since they each affect each other’s.
And if we’re going with “the government tracks such things and does calculations to prevent splitting from mattering” then it should be possible to build it on your own land and still get the tax reduction.
Well if a person wants not to pay taxes so much that they are ready to split part of their land to another owner and make sure that garbage dump is built on both their pieces… why not just sell your land to someone who would use it more productively to beguin with? There is no incentive to simply occupy land under LVT. And as long as LVT is not above 100% using it productively is more benefitial than trying to decrease its value as much as possible.
Its zero only with 100% LVT, and usually people are proposing something like 85%.
But even assuming 100% LVT and zero price of the land. Why not give it for free to someone who would use it more productively? This is more economically sound than keep paying taxes for the piece of land you do not use.
You’re also stuck with the land since you’ve got some buildings on it and you can’t move the buildings, so selling it has huge switching costs.
Of course, you’ll need land to build the garbage dump on, but the garbage dump can affect the property values of a larger sized area than the actual dump. Also note that the garbage dump unequally reduces the value of different uses of the land, so the querstion “doesn’t the garbage dump reduce the value of the building by enough to make up for the tax savings” may not be a yes. In some cases, the building that’s already on the land may even produce a garbage dump as a side effect—consider a factory, for instance.
I feel that you are loosing track of the conversation.
The initial example was about an empty lot and the incentives of the owner what to build there. Now you are suddenly talking about already having buildings on the land.
We can talk about this different case, of course, but first lets finish the case we started with. Do you concede that LVT does not, in fact, motivate to build garbage dumps on empty lots more than SQ?
No, I don’t concede that. Even for an empty lot, the guy who owns it presumably owns it for a reason. Like buildings, it’s plausible that this reason 1) cannot just easily transfer to a new piece of land, and 2) is not reduced in value so much by the garbage dump that building the garbage dump isn’t worth it.
Also, if he sells it, someone else can build a building on it, thus increasing the taxes he has to pay on the remaining portion. And if he builds a garbage dump, it discourages other people from building nearby and raising his taxes; selling doesn’t do that.
I mostly disagree with your example (the use of RV’s is nice, although I think it changes the equations too much) but I can grant you (and Malcolm Ocean) the point:
>Yes, this is the standard Georgist position, and it’s the reason why land owners mainly capture (positive and negative) externalities from land use _around_ them, not in their own land.
Might we agree that positive externalities outweigh negative ones as evidenced by high land prices? If we take this position at it’s best, at the end of the day, how is taxing the capture of a positive externality (LVT) any better than the taxing the creation of value (SQ)? (Given that the positive externality already exists and would be captured for free under the SQ.)
>The question is, which of these effects is bigger? I would say that landowners have more influence over their own land than over surrounding land, so a priori I would expect more density to result from an LVT
The effects you’ve identified I think are fairly comprehensive. However I think that “Moving to a less dense place” is actually a method to reduce density in the surrounding land i.e. picking up all the skyscrapers and spreading them apart (the regularisation effect over density) and is a decision which landowners frequently make.
Might we agree that positive externalities outweigh negative ones as evidenced by high land prices? If we take this position at it’s best, at the end of the day, how is taxing the capture of a positive externality (LVT) any better than the taxing the creation of value (SQ)? (Given that the positive externality already exists and would be captured for free under the SQ.)
Taxing creation of value leads to existence of less value. Taxing capturing of value by land leads to less value been captured by land. The latter is much better outcome because both having more value is generally good and land capturing value is generally bad—its the source of huge amount of problems with the economy.
There is one case where land capturing the gains of economic actvity can at least seem fair. A Disneyland scenario—where you own a lot of land in close proximity and create all the economic activity on it. But in absolute majority of cases your land is capturing the fruits of labour of other people. Other people create businesses and amenities around you and you benefit from them twice—both by consuming the products and amenities that you want without needing to travel and by having your land increase in value without you doing anything. This creates opportunities for rent seeking behavior. And land speculation, which itself leads to even greater land prices. And therefore progress is followed by poverty.
“Moving to a less dense place” is actually a method to reduce density in the surrounding land i.e. picking up all the skyscrapers and spreading them apart (the regularisation effect over density) and is a decision which landowners frequently make.
You seem to be confusing citation and the referent for “surrounding land”.
Let’s say that you live in land A0, surrounded by land A. You would rather move to less less dense neighbourhood, to land B0, surrounded by land B. When you do so, you stop calling land A as “surrounding land” and start calling land B as “surrounding land” and can say that the density of the surrounding land has decreased. But actually, the density of both A and B stayed the same.
The arguments you make seem backwards to me.
Yes, this is the standard Georgist position, and it’s the reason why land owners mainly capture (positive and negative) externalities from land use around them, not in their own land.
This seems wrong. The construction of a building mainly affects the value of the land around it, not the land on which it sits. Consider the following example in which instead of buildings, we have an RV and a truck, so there is no cost of building or demolishing stuff:
There’s a pristine neighborhood with two empty lots next to each other in the middle of it. Both sell for the same price. The owner of empty lot 1 rents it to a drug dealer, who places a rusty RV on the lot and sells drugs in it. The owner of empty lot 2 rents it to a well-known chef who places a stylish food truck on the lot and serves overpriced food to socialites in it.
Under SQ, who do you think would profit from selling the land now? The owner of lot 2 has to sell land next to a drug dealer that a prospective buyer can do nothing about. The owner of lot 1 has to sell land next to delicious high-status food, and if a buyer minds the drug dealer he can kick him out. Who is going to have an easier time selling? Who is going to get a higher price?
Now, suppose there is a LVT. If the tax is proportional to the selling price of the land under SQ (as it ideally should), which owner is going to pay more tax?
The case of the theme park and garbage dump is exactly the same, with the added complication of construction / demolition costs. An LVT should be proportional to the price of the land if there were no buildings on top of it (and without taking into account the tax itself), so building a garbage dump is not going to significantly reduce your tax payments.
There are several separate effects here, if you are a landowner. Under LVT:
You are incentivized to reduce the density in surrounding land
You are incentivized to build as densely as possible within your own land to compensate the tax
Under SQ:
You are incentivized to increase the density in surrounding land
You are not incentivized to increase density in your own land
The question is, which of these effects is bigger? I would say that landowners have more influence over their own land than over surrounding land, so a priori I would expect more density to result from an LVT
That brings up the splitting question.
If two people owning adjacent parcels of land each build a garbage dump, they will in fact reduce both of their taxes since they each affect each other’s.
And if we’re going with “the government tracks such things and does calculations to prevent splitting from mattering” then it should be possible to build it on your own land and still get the tax reduction.
Well if a person wants not to pay taxes so much that they are ready to split part of their land to another owner and make sure that garbage dump is built on both their pieces… why not just sell your land to someone who would use it more productively to beguin with? There is no incentive to simply occupy land under LVT. And as long as LVT is not above 100% using it productively is more benefitial than trying to decrease its value as much as possible.
Because the market price of your land is zero.
Its zero only with 100% LVT, and usually people are proposing something like 85%.
But even assuming 100% LVT and zero price of the land. Why not give it for free to someone who would use it more productively? This is more economically sound than keep paying taxes for the piece of land you do not use.
You’re also stuck with the land since you’ve got some buildings on it and you can’t move the buildings, so selling it has huge switching costs.
Of course, you’ll need land to build the garbage dump on, but the garbage dump can affect the property values of a larger sized area than the actual dump. Also note that the garbage dump unequally reduces the value of different uses of the land, so the querstion “doesn’t the garbage dump reduce the value of the building by enough to make up for the tax savings” may not be a yes. In some cases, the building that’s already on the land may even produce a garbage dump as a side effect—consider a factory, for instance.
I feel that you are loosing track of the conversation.
The initial example was about an empty lot and the incentives of the owner what to build there. Now you are suddenly talking about already having buildings on the land.
We can talk about this different case, of course, but first lets finish the case we started with. Do you concede that LVT does not, in fact, motivate to build garbage dumps on empty lots more than SQ?
No, I don’t concede that. Even for an empty lot, the guy who owns it presumably owns it for a reason. Like buildings, it’s plausible that this reason 1) cannot just easily transfer to a new piece of land, and 2) is not reduced in value so much by the garbage dump that building the garbage dump isn’t worth it.
Also, if he sells it, someone else can build a building on it, thus increasing the taxes he has to pay on the remaining portion. And if he builds a garbage dump, it discourages other people from building nearby and raising his taxes; selling doesn’t do that.
I mostly disagree with your example (the use of RV’s is nice, although I think it changes the equations too much) but I can grant you (and Malcolm Ocean) the point:
>Yes, this is the standard Georgist position, and it’s the reason why land owners mainly capture (positive and negative) externalities from land use _around_ them, not in their own land.
Might we agree that positive externalities outweigh negative ones as evidenced by high land prices? If we take this position at it’s best, at the end of the day, how is taxing the capture of a positive externality (LVT) any better than the taxing the creation of value (SQ)? (Given that the positive externality already exists and would be captured for free under the SQ.)
>The question is, which of these effects is bigger? I would say that landowners have more influence over their own land than over surrounding land, so a priori I would expect more density to result from an LVT
The effects you’ve identified I think are fairly comprehensive. However I think that “Moving to a less dense place” is actually a method to reduce density in the surrounding land i.e. picking up all the skyscrapers and spreading them apart (the regularisation effect over density) and is a decision which landowners frequently make.
Taxing creation of value leads to existence of less value. Taxing capturing of value by land leads to less value been captured by land. The latter is much better outcome because both having more value is generally good and land capturing value is generally bad—its the source of huge amount of problems with the economy.
There is one case where land capturing the gains of economic actvity can at least seem fair. A Disneyland scenario—where you own a lot of land in close proximity and create all the economic activity on it. But in absolute majority of cases your land is capturing the fruits of labour of other people. Other people create businesses and amenities around you and you benefit from them twice—both by consuming the products and amenities that you want without needing to travel and by having your land increase in value without you doing anything. This creates opportunities for rent seeking behavior. And land speculation, which itself leads to even greater land prices. And therefore progress is followed by poverty.
You seem to be confusing citation and the referent for “surrounding land”.
Let’s say that you live in land A0, surrounded by land A. You would rather move to less less dense neighbourhood, to land B0, surrounded by land B. When you do so, you stop calling land A as “surrounding land” and start calling land B as “surrounding land” and can say that the density of the surrounding land has decreased. But actually, the density of both A and B stayed the same.