Recently a friend expressed some concern over the impact land value taxes might have on landowners ability to stay on their property if they were to rise. I wanted to address his concerns here.

Rising rents, as of now, already affects renters and leaseholders. The only people immune from rising rents are the landlords but why is this and why should this be fair? The landlord did nothing to earn that increased rent. He did not have to improve the land, raise cattle or crops, he just had to hold the title to the land in order to claim his rewards. To make my point, let’s look to the city of San Francisco. A city that has unprecedented economic growth over the past 20 years. https://www.zillow.com/san-francisco-ca/home-values/ .

Home values have soared and rent prices have followed. A home that was worth 430k 20 years ago is now worth almost 1.5 million. The man who was fortunate enough to own his home 20 years ago has now made over a million dollars without even lifting a finger. The amount of money he has to pay in property taxes is negligible compared with what he has gotten from owning his home (there’s actually an amendment in the CA constitution that prevents property taxes from increasing quickly(!)). The renter meanwhile has seen his rent increase nearly as fast without any of the wealth accumulation that the landlord has.

This may be all fine and dandy some might say. What if the landlord gets the million dollars for nothing? It’s not like he’s hurting anyone keeping his home.

Henry George (circa 2019)

By holding title to that land, he has excluded anyone else from living there as well. Done individually the damages done here are minimal but at a large scale like San Francisco it makes housing scarce. This scarcity increases home prices, increases rent prices, and forces those who would otherwise be able to afford a home or an apartment onto the streets. Due to the landowner protecting his own interests he has made the surrounding area unaffordable to people who might want to work there, squeezed the incomes of those around him by making them pay increased rents, and put yet others onto the streets and into a situation worse than both of those.

Now the landowner fleeing the land after land value taxes increase too high. This is not a bad thing. This does not mean that the landowner will be homeless. He could move to a less valuable piece of land that was more in line with what he originally had or he could adapt the land himself to account for the increase in LVT. What might a better use of this land be?

Instead of a single family housing unit the developer might build an apartment complex where instead of a single family being housed he can now house 10 families. Instead of a single restaurant there might be a strip mall. In both of these instances the original resident and business don’t have to be forced out. Rather, with the additional businesses and residents, they become more productive.

We shouldn’t have our economy held back by the interests of the landlords, the speculators, or the selfish homeowner. In order to have an economy work for everyone, we need to start taxing smarter.