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Speculative value of land - Casey and Wetzel

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  • Mason Gaffney
    If I understand Joe Casey, he makes an important point. To be most effective, a LVT must be based on full market value of land, not just on a value derived
    Message 1 of 1 , Sep 9, 2004
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      If I understand Joe Casey, he makes an important point. To be most
      effective, a LVT must be based on full market value of land, not just on a
      value derived from discounting the current rent. The latter practise
      (practice) subsidizes all those who are underusing good land.

      I would guess that at least 1/3 of the land in the U.S.A. lies in what have
      become zones of transition. In these zones, there is a Resale or Reuse
      value (call it "R") based on a new use, of considerably higher value than
      the current use - even where the land is fully developed in the current use.
      No one buying or selling in such a market is innocent of this fact. To
      claim so is totally disingenuous, and lacks credibility.

      Market value of lands held for their cash flow is the sum of the Discounted
      Cash Flow (DCF) from the current use, over its future life, plus the
      discounted value of R.

      I've one quibble with Joe Casey, and I believe it was simply an oversight,
      not intended. He writes of cash flow without mentioning the imputed value
      of owner-occupied land held for the owners' personal use and pleasure. The
      usual term for that is "Service Flow." Discounted Service Flow (DSF) is
      another major component of the market value of land.

      Land monopolists play on popular myths and confusions to get us to omit both
      R and DSF from the taxable value of land. We must not let them get away
      with it.

      Mason Gaffney
      ----- Original Message -----
      From: "Wetzel Dave" <davewetzel@...>
      To: "'Land Café ( lc1) '" <LandCafe@yahoogroups.com>
      Cc: "'Joseph Casey'" <buylosellhi@...>
      Sent: Thursday, September 09, 2004 1:49 AM
      Subject: RE: [LandCafe] [diggers350] LVT - universally applied nonsen se


      > Joe Casey [mailto:jmcasey@...] Writes:
      >
      > For LVT to be effective in eliminating "freehold value" as you define it,
      > LVT should be applied to total market value. As LVT has its effect on the
      > market, speculative value would decrease on some land and increase on
      other.
      > The market and prospects of any site change over time and speculators will
      > always try to out guess the market.
      >
      > I prefer to call the present value of discounted market cash rent the
      > capital value and any additional value as speculative value. To an
      investor
      > who needs land, the present value of rent to be paid should equal the
      > present value of land to be acquired, thus capital value. This is the
      > process for valuing capital (money) market instruments such as bonds,
      money,
      > and derivatives. In a perfect market, land speculation would be not be
      > practiced, because all rent would be paid as LVT. Because land markets
      are
      > not perfect there will always be speculative winners and losers, let them
      > pay LVT, otherwise speculative gains go untaxed as long as they are held,
      > thus encouraging longer holdings.
      >
      > Joe Casey
      >
      > Your comment:
      > > Remember, there are two forms of land value:
      > > 1. The annual rental value of a site arising from its optimum permitted
      > use,
      > > ignoring all improvements.
      > > 2. The capital (or freehold) value of this same site in today's
      imperfect
      > > land market which is not just a multiplier of the economic rent but also
      > > includes "hope value" for future actions (such as change of use by
      > planners,
      > > new services or infrastructure which will benefit the site).
      > >
      > > The valuation for LVT would be based upon 1. above and not 2. (This is
      > > because LVT will tend to reduce 2 by taking away the speculators' gain).
      > >
      > >
      > > Dave
      > > Dave Wetzel
      >
      >
      >
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