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?
> 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.