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1760RE: [LandCafe] No land price with full land tax - simply is not true

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  • Harry Pollard
    Nov 22, 2006
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      Ed,
       
      We have to beware of using market values for Rent.
       
      Rent is a general value. If we produce on (say) 10 land then with the same exertion we will finish up with10 more than marginal land with a Rent of zero. The fact that you, by virtue of your talent and experience, might build a far more profitable structure will not affect the Rent, though it might well affect the amount you can pay for the site..
       
      If this is Number One Park Avenue, then though I would do my best to take full advantage of the rent if I build there, it is likely that Donald Trump would build a much more profitable improvement than I.
       
      Actually, he did.
       
      So, although I can pay the Rent, Donald will be able to pay much more than I for the site. Does this mean that we should charge him more "Rent" because of his special skill and knowledge. If this is so, then our Rent collection will be collecting not only Rent but also wages from Donald.
       
      You know of the Danish street valuations (now used everywhere says Ted). Every lot gets the same valuation. Because Donald could and would pay a premium to get a particular lot on which to use his special skill, should the Rent assessment therefore rise on that one lot?
       
      Not according to the expert street valuers.
       
      Rent is the same whether Pollard or Trump wants the site. Remember the Rent is an extrinsic value created by the surrounding community. Pollard and Trump have nothing to do with it except as members of the community.
       
      I do think that in a Georgist city with 100% of the Rent collected, in due course, every site would be used. However, there will probably be a market for the land part of property, particularly in higher Rent locations..
       
      If it's getting close to the time for a building to be demolished, both Pollard and Trump will be able to bid for the right to demolish and rebuild from the existing owner. Because of Trump's professionalism, I think he could pay more than I for the right to demolish and build. So, he'll get it.
       
      I would think that there is likely to be a thriving market in land in a Georgist economy, but the prices won't be extraordinary. Trump paid more than $100 million an acre for the Park Avenue site. In a Georgist economy he might pay (say) a couple of hundred thousand dollars to the existing owner to get the sale. I couldn't afford it with my lesser skills.
       
       Paying the sweetener will not change the Rent valuation - which Trump would have to pay to the City of New York..
       
      One notes that in Las Vegas mammoth hotels bite the dust - literally - because big though they are they can't take advantage of escalating Rents. So, they are replaced with structures that can.
       
      I think in a Georgist economy we would find continual replacement of inefficient buildings especially so in the changeover from the present rather inefficient system.
       
      Hey! Unemployment might become an unknown word.
       
      Maybe we should spend more space on the economic effects of our change and less on the revenue prospects. The economic effects are what we have to sell.
       
      Harry
       
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      From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On Behalf Of Edward Dodson
      Sent: Wednesday, November 15, 2006 8:22 AM
      To: 'Mark Monson'; LandCafe@yahoogroups.com
      Subject: RE: [LandCafe] No land price with full land tax - simply is not true

      Ed Dodson with a comment...

      Without an active leasehold market for locations, determining the annual
      rental value of a parcel of land requires the assessor to use a
      capitalization rate common to other investment alternatives. In most markets
      where there are land sales, the average annual increase in capitalized land
      value can be calculated (selling price, less acquisition cost, less the
      taxes assessed on the gain).

      For the foreseeable future, it is unlikely that very many tax assessors will
      get better at adjusting assessment values to accurately reflect market
      values (Ted Gwartney excepted). Thus, the practical strategy is to get the
      various levels of government that tax real estate to get to a land-only tax
      base over some period of time. This will, in itself, squeeze out the
      speculative profits of investing in land and holding it for resale. When we
      begin to see fewer and fewer vacant parcel of land in an economically
      vibrant area, we know that speculative rent is disappearing and the
      community is approaching the point where the land market is responding to
      competitive signals. At that point, market rents are in play; every
      subsequent increase in the tax rate should see a subsequent decline in the
      selling price of land. Land value, meaning the potential annual rental value
      of a location, is likely to be rising as the potential for more revenue to
      be generated by businesses at desired locations increases.

      I also see a scenario where, even when the annual tax payment comes very
      close to the full potential rental value, the selling price for locations
      does not fall (or fall close to zero) in the near-term. The reason? Demand
      for some specific locations is so high that purchasers are willing to pay a
      premium to the seller above what the immediate return on investment
      calculations warrant. The investor in whatever business is to be engaged in
      is "speculating" that the volume of business will increase at an increasing
      rate.

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