Tech billionaire wants to solve economic inequality, among other problems, by building a new city funded by land value tax. As described here, alternate source here.
Of course there are all kinds of issues involved in building a new, freestanding city, but it’s encouraging that he wants to start on a sound economic basis. Thanks to Bob Jene and Edward Miller for the tip.
UPDATE Aug 29 2021: If anyone familiar with Chicago doubts that removing improvements from the tax base will ease the burden on low-income homeowners, this map will be instructive. The original, mapless post from Aug 25 follows.
We sometimes are told that a land value tax (LVT) would punish the poor person who has a small rundown house on a high-value lot, while benefiting the person next door who has a large fancy house on an identical lot. And that’s not wrong, it’s just atypical. In practice, we believe, poor people mostly live in neighborhoods where housing is cheap and land is cheaper, thus they would tend to benefit from a shift to LVT.
As the quality of Cook County assessments has been improving, we expect to be able to show this by analysis of that data. In the meantime, we have some estimates of land and improvement value from William Larson and colleagues at the Federal Housing Finance Agency. Using appraisals produced for mortgage underwriting, they estimate land and improvement values for homes in most zip codes (and census tracts) nationwide. Their source data includes only single family properties which were appraised for mortgage purposes. They consider only parcels where the improvement is less than 15 years old, and exclude vacant land as well as land where the appraised value is very close to the assessed value (in case appraisers might have relied on low-quality or obsolete assessments). Also excluded are zip codes with an insufficient number of single family home transactions.
The chart below shows, for Chicago zip codes, the ratio of land value to total value (vertical axis) and total value of the property (horizontal axis. What stands out is that the ratio tends to be lower where the properties are cheaper. That is, a revenue-neutral shift of property taxation to land values only, ignoring value of improvements, would tend to reduce the taxes on low-value zip codes, while increasing it in higher-value areas.
The table below shows the data for each zip code, sorted from high proportion of value in land to low. Clearly the more affluent areas have lower proportion of improvement value, and the areas with low income population have a higher proportion of improvement value.
| Estimated land value proportion and related data for single family properties in Chicago zip codes | |||||
| ZIP Code | Lot Size | building sq ft | floor area ratio | Property Value (As-is) | Land Share of Property Value |
| 60640 | 4300 | 2320 | 0.540 | $809,500 | 50.70% |
| 60614 | 2920 | 2950 | 1.010 | $1,516,300 | 47.10% |
| 60613 | 3740 | 2590 | 0.693 | $1,128,200 | 46.90% |
| 60625 | 4220 | 1860 | 0.441 | $528,000 | 46.30% |
| 60618 | 3580 | 1890 | 0.528 | $615,800 | 45.90% |
| 60660 | 3820 | 1940 | 0.508 | $553,500 | 44.50% |
| 60657 | 3210 | 2600 | 0.810 | $1,133,300 | 44.40% |
| 60622 | 3120 | 2330 | 0.747 | $911,800 | 41.80% |
| 60631 | 5620 | 1690 | 0.301 | $390,700 | 40.90% |
| 60610 | 2250 | 2900 | 1.289 | $1,443,300 | 40.20% |
| 60646 | 5370 | 1820 | 0.339 | $445,900 | 39.80% |
| 60647 | 3250 | 1880 | 0.578 | $600,800 | 39.20% |
| 60654 | 1990 | 3580 | 1.799 | $1,661,200 | 37.40% |
| 60630 | 4310 | 1550 | 0.360 | $315,500 | 37.20% |
| 60642 | 2230 | 2140 | 0.960 | $667,200 | 37.20% |
| 60641 | 4230 | 1640 | 0.388 | $316,400 | 35.70% |
| 60605 | 1840 | 2200 | 1.196 | $774,700 | 35.30% |
| 60659 | 4310 | 1800 | 0.418 | $367,500 | 35.10% |
| 60626 | 5410 | 2050 | 0.379 | $407,400 | 34.20% |
| 60656 | 5100 | 1500 | 0.294 | $334,600 | 34.20% |
| 60612 | 2910 | 1920 | 0.660 | $424,300 | 33.90% |
| 60645 | 4420 | 1870 | 0.423 | $373,600 | 33.70% |
| 60634 | 4240 | 1470 | 0.347 | $264,100 | 32.40% |
| 60608 | 2960 | 1530 | 0.517 | $302,200 | 31.70% |
| 60615 | 4460 | 2630 | 0.590 | $615,700 | 31.50% |
| 60616 | 2570 | 1950 | 0.759 | $447,900 | 31.40% |
| 60607 | 1970 | 2140 | 1.086 | $641,400 | 28.90% |
| 60655 | 5140 | 1490 | 0.290 | $258,000 | 28.80% |
| 60707 | 4940 | 1600 | 0.324 | $258,700 | 28.70% |
| 60637 | 3920 | 1970 | 0.503 | $350,000 | 26.30% |
| 60609 | 3320 | 1450 | 0.437 | $209,700 | 25.20% |
| 60639 | 3900 | 1420 | 0.364 | $202,900 | 25.20% |
| 60638 | 4280 | 1340 | 0.313 | $225,100 | 24.70% |
| 60632 | 3860 | 1300 | 0.337 | $173,600 | 20.60% |
| 60643 | 5960 | 1600 | 0.268 | $200,800 | 20.60% |
| 60652 | 4730 | 1330 | 0.281 | $176,400 | 18.30% |
| 60629 | 4040 | 1340 | 0.332 | $155,300 | 17.40% |
| 60651 | 3920 | 1440 | 0.367 | $158,300 | 16.90% |
| 60653 | 3290 | 2360 | 0.717 | $390,100 | 16.60% |
| 60644 | 4580 | 1650 | 0.360 | $137,400 | 16.00% |
| 60633 | 4690 | 1320 | 0.281 | $120,200 | 15.20% |
| 60649 | 4960 | 1870 | 0.377 | $170,800 | 13.80% |
| 60623 | 3510 | 1340 | 0.382 | $118,500 | 13.60% |
| 60624 | 3300 | 1540 | 0.467 | $122,200 | 12.80% |
| 60621 | 3880 | 1490 | 0.384 | $69,300 | 11.50% |
| 60617 | 4200 | 1360 | 0.324 | $116,300 | 11.20% |
| 60619 | 4320 | 1430 | 0.331 | $127,700 | 10.50% |
| 60636 | 3540 | 1270 | 0.359 | $65,200 | 10.30% |
| 60620 | 4180 | 1410 | 0.337 | $117,800 | 10.20% |
| 60628 | 4320 | 1340 | 0.310 | $99,800 | 9.20% |
| source: | https://www.fhfa.gov/PolicyProgramsResearch/Research/Pages/wp1901.aspx | ||||
A Chicago zip code map is here.
Also of interest, even tho the low-value areas have a high ratio of improvement to land value, this isn’t because of large houses on small lots. The floor area ratio is generally lower in the areas with lower land value proportion.
Overall, the above data is consistent with Georgists’ assertion that low-income residents usually benefit from a switch to LVT. I might be taking a further look at this dataset.
I don’t know that governments are always and inevitably corrupt, but there sure seems to be a lot of corruption going on. It isn’t a new development; maybe it’s worse nowadays or maybe just more visible.
So how can we single taxers say that we want the government to collect all, or nearly all, of the economic rent? Don’t we know that it will be stolen or, at best, wasted?
Not necessarily. Consider the following:
In the U S at least, real estate tax is administered and collected at the local — that is, substate– level. This is where the records and expertise needed to operate a land value tax exist.
Unlike income tax or sales tax, nearly all the data involved in real estate taxation is public information. Most of this data is accessible to everyone with internet access, generally without fee. I can see how much real estate tax my neighbor paid. I cannot see how much income tax they paid. The same goes for sales taxes and most other kinds of taxes. So cheating in real estate tax can be seen. That doesn’t mean it will always be impossible for people to cheat, but it provides a much greater possibility that cheating will be observed and rectified.
Government corruption seems to be a function of government size. A survey earlier this year found that “87% of voters nationwide believe corruption is widespread in the federal government. Solid majorities believe there is also corruption in state (70%) and local (57%) government.” Looked at the other way round, only 13% of us believe the federal government is possibly honest, compared to 30% for states and 43% for localities. I actually believe that one of the local governments to whom I pay taxes is pretty honest and efficient.
State and federal governments might logically collect some of the economic rent. Examples currently include severance taxes and could reasonably include rents for electromagnetic spectrum should our rulers become persuaded to levy and collect them. Existing federal agencies are able to review and evaluate collection efforts.
Christopher Flavelle’s recent Business Week article looks at how rising sea levels can affect ownership of newly-submerged land. Part of the problem, of course, is that owners of these parcels want the government (Corps of Engineers, local authorities, somebody!) to use expensive artificial means to preserve or recover their properties, but of course don’t particularly want to pay for the service. Complicating the situation is the public trust doctrine, as applied in the various coastal states, which prohibits private ownership of submerged land. So if the land is recovered, who owns it?
Expanding on a subject covered here nearly six years ago, Tim Novak of the Sun Times writes about assessment deals in Wrigleyville. Actually, not just 32 properties in Wrigleyville, but apparently on 13,984 parcels countywide, each of which reportedly contains commercial use along with at least one, but no more than six, apartments.
Because Cook County taxes residential (and vacant) property at 40% of the rate applicable to commercial property, and because, 17 years ago, the Cook County Board decided to pretend that commercial property containing one to six apartments is residential, taxes on these 32 Wrigley-area properties (and, presumably, on all 13,984 parcels) are only 40% of the amount they would otherwise be. Furthermore, Novak visited some of the properties and found evidence that they don’t contain any apartments at all. Which Assessor Berrios thanked him for reporting.
Novak also visited an auto repair shop across the street from Wrigley, whose owner owes $78,000 in back taxes and claims to fear losing his property. Of course I don’t know the owner’s personal financial situation, but given high land prices in the neighborhood, it seems he could sell his site for a couple million dollars, take the money and buy (or buy land and build) a better facility a mile or two away. Across from Wrigley may have been a good location for car repair in the 1970s, but not so today.
Three conclusions:
(1) Sun Times needs to sell papers (and attract web traffic) and putting “Wrigley” in the title probably doubles or quadruples the number of people who’d read an article about “tax break.” But the issue is taxes, not commercial baseball.
(2) Once again, let’s be thankful that real estate tax and assessment data is (mostly) accessible to the public. Who knows what kinds of scandals there are on the income tax and sales tax returns filed by the politically-connected property owners, their accountants or attorneys? Unless Wikileaks takes an interest, we’ll never see them.
(3) All this would be solved with a land value tax. Everybody pays the same rate — a big rate — based on the value of their land, exclusive of improvements, and perhaps no other taxes are needed. If there were inequities, the Sun Times — or the Civic Federation — could publish maps making them readily visible.
…or at least so it appears from this interview. (No transcript is posted so you’ll have to listen to the audio.) Andrew Barr is described as Chief Minister of the Australian Capital Territory. His jurisdiction is substituting a “land tax” (which seems to be approximately proportional to land value) for the “stamp duty” (tax on buying/selling real estate), also using the revenue to reduce payroll taxes and eliminate a tax on insurance. He calls the land tax the least distorting tax.
The change is, in a sense, optional. Owners may choose,, instead of paying the tax annually, to incur a debt which becomes due when the property is sold.
Apparently this change is being phased in, having been announced in 2012, as also reported by Incentive Taxation.
Harare is now taxing residential parcels based exclusively on the value of the land, with all houses free of tax. The net result is that most homeowners will pay the same or less, but owners of vacant plots will pay “a lot more,” with total revenue expected to increase from US$8 million/month to US$12 million/month. Authorities will not literally value every individual parcel, but assign values based on zones and size categories, providing a pretty good approximation of value at relatively little cost.
In addition to the 50% increase in revenue,
[T]he migration from land and improvements valuations to land only with the rates set by zoning was designed to encourage people to develop land fully or sell it to those who will.
According to the source article, houses in some parts of Harare had already been exempt before the change. Thanks to Gil Herman for the link.
Our local authorities, if they were serious about the need for more revenue without burdening residents, would seek a similar system.
And some Chicagoans might want to try Harare activists’ approach to the privatization of parking and towing.
A new report from the University of Minnesota looks at ways of financing transportation projects by capturing part of the benefit they provide. Land value tax is only one of the eight options (Land Value Tax, Tax Increment Financing, Special Assessments, Transportation Utility Fees, Development Impact Fees, Negotiated Exactions, Joint Development, Air Rights) considered.
A quick skim indicates that on the whole it’s pretty good, though it seems to overestimate the difficulty of assessing land value, and repeats the error of some previous studies which conflates owners of land occupied by low income people with the low income people themselves. (More likely, low income people are renters living on land owned by someone else, and when taxes on such land increase the owners can’t pass the cost on to their tenants.)
There is also mention of a study, new to me, that seems to document an anti-sprawl benefit from a land tax. The study unfortunately is secured by ssrn; I shall have to try to find it elsewhere.
This study was requested and funded by the Minnesota legislature.
Hat tip to lvtfan.
is subtitled “How it Moves and Why,” but this isn’t about the Kinetic Condos. It’s a response to a questions Georgists often hear: “If you’re so smart, why aren’t you rich?” Different Georgists give different answers, including “I am rich.”
We know that the major cause of the business cycle is the capitalization and trading of government-protected privilege. This privilege can be any kind of income obtained without producing, and may flow from spectrum licenses, drilling rights, patents, copyrights, or a hundred other sources. But the main one is land ownership, since land is not a product of human labour.
When demand increases for a product or service, production can increase, but that isn’t true of privilege. The only limit on the price of privilege is what the market will bear without breaking. So can’t we measure that price, use the information to forecast economic meltdowns, and thus become wealthy?
Our massive government statistics operations, which know how much more Asian-American households spend on rice than the rest of us do (4 times as much, as of 2003), and that people spend an average of 2.43 hours each weekday watching television, know just about nothing about the price of land. Only a few countries maintain any such information (Korea, Japan, Denmark, and Australia come to mind). Many local authorities compile land assessments, but the relationship to actual market prices is, at best, elastic, and the information is not systematically reported. So indirect and ephemeral indicators must be relied upon.
Moreover, they land price cycle tends to run about 18 years, and may be disrupted by war (not by much else, it appears). This means that taking advantage of it requires a great deal of patience and, one can only say, a certain amount of faith. And starting at a young enough age, by the way. Of course the cycle might be entirely abolished, but that would require the elites, and some of the non-elites, to surrender significant privilege.
The book is well-written, well-edited, and well-documented. (A subject index would be nice.) Economist Mason Gaffney’s review is far more informed than anything I could have produced. He points out a number of imperfections, but on the whole this is a very useful book for anybody who wants to know why many of us aren’t rich, or who would like to be.
A “not so concise explanation of Land Value Tax and some brief responses to some of its most common objections” at Jock’s Place
A good balance between failing to adequately describe it and going beyond the readers’ attention span. British, but comprehensible.