Land value taxes are an attractive approach to public finance. However, some people argue that the difficulty of assessing land values makes land value taxation impractical. While I think assessment by governmental officials typically gis good enough for practical purposes, it’s worth thinking about ways to do even better. I believe a promising avenue for this is auctions so I’d like to stimulate Hdiscussion on using them.
There's actually a lot of similarity between this auction-based valuation and assessment-based valuation. An assessment-based system is always disciplined to sales, which *are* auctions when the seller is trying to get the fair market value for their land. The difference is that an assessment system doesn't try as hard to get the most relevant information — it just accepts whatever sale data is available from the neighborhood, and interpolates across time and space. For a plot of land that hasn't been sold in a long time you have to look at nearby plots of land that have sold more recently to inform the valuation. But by encouraging regular auctions with the compounding increase in the tax, this interpolation is unnecessary, and the assessed value can simply be based on the most recent valuation for that exact plot of land. It's easier to understand (no complex assessment models), requires less labor (no model maintenance or dispute resolution), and handles edge cases perfectly (valuation is based on the exact plot of land and its unique location and features). Very compelling!
Sam, Thank you for this healthy mental exercise on a Thursday morning. I didn't follow the tax part: when do people start paying this land value tax? Only when the new owner takes possession of the land, at the price she bid? If no land is sold, how is it to be valued?
If you haven't seen it, take a look at 'Radical Markets' by Posner and Weyl who propose a similar land auction model, starting with a self assessment for tax purposes - with the proviso that anyone can buy your land once you have declared your value... set the value too low, and risk losing your home!
Wow, this is amazing! Having the seller decide what to count as land and what to count as improvements is super cool. Love that it automatically handles any uniqueness about any particular plot of land.
Buying the land but not the property takes some head wrapping. I wonder if there are edge cases where properties do end up having to be taken down by the seller and those edge cases create a sentiment of unfairness. Maybe the Nash equil holds up.
Btw what’s the issue with using total sale values and doing interpolation and extrapolation (or even neural networks) to estimate values of land? Maybe that ends up being gamed over time
Bad idea, which stems from the initial error of using selling prices as the basis of land value taxes.
The basic value of land is its gross annual value, which is its market rental value PLUS all property taxes currently payable. Selling prices are a derived value, being the capitalisation of that part of the gross value that is retained by the owner, plus an uncertain amount of hope value. It is an unstable value, dependent on, among other factors, interest rates, expectations of future interest rates, and the real estate cycle.
It lays LVT open to the valid objection that it is a tax on a value which cannot be realised. It also promotes general misunderstanding about the very nature of land economics.
This issue has been widely discussed, at least in Britain, where property taxes have traditionally and quite rightly been based on rental values.
Appreciate the effort, but given that land and improvements are already separately valued in most states using long-established appraisal procedures, I think this a solution in search of a problem.
I probably am not understanding well enough -- maybe you covered this and I missed it?
1. If peeling the land off from the improvements means I have to publicly auction, then only be able to sell the improvements to the new land buyer, wouldn't it be better to sell them together? That way I can sell to whomever I want, without public auction.
2. If the only person I could sell the improvements to is the new land buyer, wouldn't the new land buyer have monopsony power such that they could get the improvements for almost free? (Or make me pay them, since I'm on the hook for removing the improvements if we can't reach an "agreement"?)
There's actually a lot of similarity between this auction-based valuation and assessment-based valuation. An assessment-based system is always disciplined to sales, which *are* auctions when the seller is trying to get the fair market value for their land. The difference is that an assessment system doesn't try as hard to get the most relevant information — it just accepts whatever sale data is available from the neighborhood, and interpolates across time and space. For a plot of land that hasn't been sold in a long time you have to look at nearby plots of land that have sold more recently to inform the valuation. But by encouraging regular auctions with the compounding increase in the tax, this interpolation is unnecessary, and the assessed value can simply be based on the most recent valuation for that exact plot of land. It's easier to understand (no complex assessment models), requires less labor (no model maintenance or dispute resolution), and handles edge cases perfectly (valuation is based on the exact plot of land and its unique location and features). Very compelling!
Sam, Thank you for this healthy mental exercise on a Thursday morning. I didn't follow the tax part: when do people start paying this land value tax? Only when the new owner takes possession of the land, at the price she bid? If no land is sold, how is it to be valued?
If you haven't seen it, take a look at 'Radical Markets' by Posner and Weyl who propose a similar land auction model, starting with a self assessment for tax purposes - with the proviso that anyone can buy your land once you have declared your value... set the value too low, and risk losing your home!
All the best
Andrew
Wow, this is amazing! Having the seller decide what to count as land and what to count as improvements is super cool. Love that it automatically handles any uniqueness about any particular plot of land.
Fair play for thinking this through in detail!
Buying the land but not the property takes some head wrapping. I wonder if there are edge cases where properties do end up having to be taken down by the seller and those edge cases create a sentiment of unfairness. Maybe the Nash equil holds up.
Btw what’s the issue with using total sale values and doing interpolation and extrapolation (or even neural networks) to estimate values of land? Maybe that ends up being gamed over time
https://www.radicalxchange.org/concepts/plural-property/
Bad idea, which stems from the initial error of using selling prices as the basis of land value taxes.
The basic value of land is its gross annual value, which is its market rental value PLUS all property taxes currently payable. Selling prices are a derived value, being the capitalisation of that part of the gross value that is retained by the owner, plus an uncertain amount of hope value. It is an unstable value, dependent on, among other factors, interest rates, expectations of future interest rates, and the real estate cycle.
It lays LVT open to the valid objection that it is a tax on a value which cannot be realised. It also promotes general misunderstanding about the very nature of land economics.
This issue has been widely discussed, at least in Britain, where property taxes have traditionally and quite rightly been based on rental values.
Appreciate the effort, but given that land and improvements are already separately valued in most states using long-established appraisal procedures, I think this a solution in search of a problem.
I probably am not understanding well enough -- maybe you covered this and I missed it?
1. If peeling the land off from the improvements means I have to publicly auction, then only be able to sell the improvements to the new land buyer, wouldn't it be better to sell them together? That way I can sell to whomever I want, without public auction.
2. If the only person I could sell the improvements to is the new land buyer, wouldn't the new land buyer have monopsony power such that they could get the improvements for almost free? (Or make me pay them, since I'm on the hook for removing the improvements if we can't reach an "agreement"?)