> > There would be an equilibrium. If the need is an average of 1.2 stories, why would developers build until there is 2.5 stories?
> Because LVT doesn't scale with buildings.
This has nothing to do with LVT. Unless you're claiming that somehow a LVT would magically cause developers to collectively throw any economic sanity to the wind and build a massive oversupply.
> Suppose you already have enough housing. More than enough, even. There is a 25% vacancy rate. Units are renting for $2000/month, half what they were before LVT. Of that, $1000 is the amortized construction cost and other upkeep. For a 1-story building, there is also another $1000/unit/month in LVT. They're already losing money because 25% of their units are vacant and they'd need a 0% vacancy rate just to break even. But they also lose money by renting for any less than $2000/month, so they're resistant to lowering rents below that because a large proportion of the units are the existing single-story housing stock.
So what this means is that there's enough demand in the area to keep land values at that level, and it's profitable to demolish small buildings and replace them with taller ones. OTOH if there's already an oversupply of housing then the land values would decrease. Eventually you have some kind of equilibrium.
> If you're in a place like NYC the developer of the 50-story building is making a lot more money than the developer of a 10-story building notwithstanding the higher construction costs
Well that's the point yes. In highly desirable places like the center of a big city like NYC, land values are huge and thus an LVT would be very high as well. Out in the boonies land values are low, and so would the LVT be. So people and businesses can choose from a range of options, between cheap land/LVT in the middle of nowhere and expensive land/LVT in the center of the city. Just like they do now without a LVT.
> In general a broad-based tax so that the rate can be lower and minimize the distortionary effect, e.g. VAT.
Unfortunately VAT is highly regressive, so while a modest VAT has a place in a broad based tax regime, it's a very bad idea as the sole tax.
> Moreover, if LVT causes land values to go down and then generates negligible revenue, this is a problem unless you find it convenient for the government to have negligible revenue.
An LVT is unlikely to make cities unattractive for people and businesses, so desirable places would remain desirable despite being saddled with a high LVT. I'd be more worried about small municipalities out in the boonies, they might not get very much revenue from a LVT. Not zero though, there's still value in, say, farmland, or a plot that is located besides a road, and has electrical cabling etc.
It's how LVT operates. You don't pay more if you build a taller building, but you pay a certain amount for the land on a continuous basis, providing an incentive to increase density beyond what would otherwise be rational, i.e. continue building until there are a significant number of empty units
> In highly desirable places like the center of a big city like NYC, land values are huge and thus an LVT would be very high as well.
Under the existing zoning regime it would be high. If people were allowed to keep building then it would just end up full of skyscrapers -- not just Manhattan but also the other boroughs -- until the cost of land fell to the cost of construction.
> Unfortunately VAT is highly regressive, so while a modest VAT has a place in a broad based tax regime, it's a very bad idea as the sole tax.
This is what corporate PR tells you when they don't want a tax they would actually have to pay.
VAT uses a flat rate, but you can achieve a progressive effective rate curve simply by combining it with a UBI.
> An LVT is unlikely to make cities unattractive for people and businesses, so desirable places would remain desirable despite being saddled with a high LVT.
But how does the LVT remain high unless you artificially constrain construction? There is nowhere that replacing every building within 100 miles with a skyscraper wouldn't result in oversupply, so land is never the limiting factor and its price would be capped by the cost of building tall buildings.
You would also have a notable problem in places like NYC: Suppose it costs more to build a tall building, so the land value is e.g. five times higher than it is in a suburban area. But the buildings also have 20 times more units, so you'd have 25% as much government revenue per resident because there are 20 times more of them per unit land.
> Because LVT doesn't scale with buildings.
This has nothing to do with LVT. Unless you're claiming that somehow a LVT would magically cause developers to collectively throw any economic sanity to the wind and build a massive oversupply.
> Suppose you already have enough housing. More than enough, even. There is a 25% vacancy rate. Units are renting for $2000/month, half what they were before LVT. Of that, $1000 is the amortized construction cost and other upkeep. For a 1-story building, there is also another $1000/unit/month in LVT. They're already losing money because 25% of their units are vacant and they'd need a 0% vacancy rate just to break even. But they also lose money by renting for any less than $2000/month, so they're resistant to lowering rents below that because a large proportion of the units are the existing single-story housing stock.
So what this means is that there's enough demand in the area to keep land values at that level, and it's profitable to demolish small buildings and replace them with taller ones. OTOH if there's already an oversupply of housing then the land values would decrease. Eventually you have some kind of equilibrium.
> If you're in a place like NYC the developer of the 50-story building is making a lot more money than the developer of a 10-story building notwithstanding the higher construction costs
Well that's the point yes. In highly desirable places like the center of a big city like NYC, land values are huge and thus an LVT would be very high as well. Out in the boonies land values are low, and so would the LVT be. So people and businesses can choose from a range of options, between cheap land/LVT in the middle of nowhere and expensive land/LVT in the center of the city. Just like they do now without a LVT.
> In general a broad-based tax so that the rate can be lower and minimize the distortionary effect, e.g. VAT.
Unfortunately VAT is highly regressive, so while a modest VAT has a place in a broad based tax regime, it's a very bad idea as the sole tax.
> Moreover, if LVT causes land values to go down and then generates negligible revenue, this is a problem unless you find it convenient for the government to have negligible revenue.
An LVT is unlikely to make cities unattractive for people and businesses, so desirable places would remain desirable despite being saddled with a high LVT. I'd be more worried about small municipalities out in the boonies, they might not get very much revenue from a LVT. Not zero though, there's still value in, say, farmland, or a plot that is located besides a road, and has electrical cabling etc.