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Comment by bradleyjg | Hacker News Reader

Land taxes are far far more difficult to calculate than property taxes. Impossible to do well in some cases. To know what land and the buildings on it are worth you can look to what people are willing to pay to buy them. There’s no similarly straightforward way to value the separate parts. So you’ll end up with a lot more wasted expert time for a less accurate result.

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Nah, it's really easy to calculate the value of the land. Once you calculate the value of the land, then it's pretty much applicable to the whole neighborhood too. It's a one-and-done analysis. This isn't my opinion. There's lots of economic research to back this up.

EDIT: some support: https://www.progress.org/articles/the-implementation-of-land...

Some evidence would be more convincing than a glib "nah, I'm right"...

Oddly enough there was no evidence provided for the original claim, either. This despite there being many sources of this estimattioj laid out directly in the original article. The comment didn't mention why the original articles' various methods do not work.

Fair point. But to me, I hold the reply to a higher standard. Why? Because a claim can be interesting (in the HN sense), even without evidence. A "no it's not" is less interesting, even though it's also a claim.

Maybe that's just me...

This really doesn't make sense. Views matter for example, land with a blocked view should be worth less than land without the blocked view.

Land immediately adjacent to a golf course or park is often valued higher. Land immediately next to railroad tracks or industry, not so much while the discount drops off steeply just a few blocks away.

Water rights, drainage, soil quality, contamination, roadway access all matter a great deal for more commercial land.

I agree that different factors cause some land to be more valuable than others.

I'd argue that the factors you've listed are relatively easy to factor into an appraisal.

Property taxes, in comparison, are really hard to compute. Each jurisdiction has different rules. There are different valuation methodologies. If you add a 2 car garage, what the useful life. What depreciation schedule should be used. How should inflation be accounted for.

I agree with your comment generally and am not sure what part of the original comment doesn't make sense to you.

EDIT: Reread my original comment and see your point now. I phrased the "easy" part too strongly. I mean "easy" in relative terms... compared to what's being done currently, but agree the wording wasn't great.

Yeah, and these features are easier to track than the interior of the house.

As an aside, I've often been surprised how little some of these features get valued. For instance, I've looked at neighborhoods where one side of the street backs to other houses and the other side backs to parkland. The nicer side is generally more expensive, but it's not a huge effect, and often homes on the bad side go for more money (because of the building itself).

Ultimately wouldn't these rates be set politically? As in, there'd be one politician who says "raise the tax and do this" and another who says "lower the tax and stop doing that" and voters just pick what they want to happen.

Aren’t all tax rates set politically?

> Property taxes, in comparison, are really hard to compute

Mark to market. If you sell your home, then that value is the fixed price of the home until the next sale event.

I bought my home from my pal for a dollar, and sold him my old house for a dollar too.

Then you end up with preposterous situations like California boomers hanging onto property where the value (and thus the property tax) was last assessed in the 70s.

this is a far better situation than rich neighbors moving in next to a lower-middle-class family and driving them out of the neighborhood by bringing up the assessed value.

Since rich people are rare, by definition this wouldn't happen very often. Unlike with the current situation in California where it happens _everywhere_. And such a lower middle class family would still be selling their house at a higher value than for which they bought it, so it's hard to see how they are being robbed.

And don't you think it's funny: we can't have rich people moving here because that would drive up land taxes, and we can't have poor people moving here because that would drive down the total resale value. I guess people should only be allowed to live among their exact socioeconomic equals ...

you're neglecting the important asymmetry. If we fail to tax a rich person, it doesn't actively hurt someone, it may passively prevent some people (who would have wanted to move in) from having an easier time with certain life-paths. If you eject a middle class person from their home, you are actively forcing them to find a new life-path. Suppose that lower-middle class person is a mobility-challenged elderly person on a fixed income that is already being eaten away by inflation. Yes, sure, they get to sell their house at a high mark to market, but they have to suffer the hassle of finding a new place, which at best is equivalent quality minus income tax on LTCG, on an eroding deadline. That is a really shitty situation to be in.

> this wouldn't happen very often

Then, I suppose we would have no reason for the term "gentrification", if it's that damn rare.

This quote from your link contradicts a "one-and-done" whole neighborhood analysis:

>There would be an annual value assessment for each plot of land

It seems the OP has better examples of how it would be done than that link.

> it's really easy to calculate the value of the land.

No, it's really easy to wave your hands and come up with a number that you claim is "the value of the land". But since that number is not based on actual sales of the land in question, it's just hand-waving. Not to mention that if you ask five different economists to do the estimating, you'll get more than five different answers. Much of the article that prompted this thread is trying to deal with this problem: there are so many widely varying estimates of land value, and no compelling reason to believe any one more than the others, because none of them are based on actual sales of the land whose value they're trying to estimate.

I'm not sure I agree with this:

> since that number is not based on actual sales of the land in question, it's just hand-waving

Actual land is sold in a lot of markets. That sets a great benchmark for "comparable transaction" types of valuation analyses which tend to be the most reliable.

If one acre of land is sold, there is a great baseline for the whole surrounding area.

I passed all 3 CFA exams and agree it's not an exact science, but as far a valuation analyses go, this one is pretty easy. Valuing something like intellectual property, goodwill impairment analyses, 409a valuations are much harder.

> Actual land is sold in a lot of markets.

But much more land with improvements on it is also sold, and that's the land that all these hand-waving formulas claim to be determining the "value" of--not the total value of land + improvements, but just the value of the land itself.

The local cost of construction per sq ft to replace an improvement is reasonably easy to arrive at. So is the annual cost to maintain an improvement. Then simply subtract from purchase price. The toughest part is making sure the process isn't corrupted and some people get an assessed land value far less or more than it is actually worth.

It likely wouldn't work with real estate, but low cost motorsports has a simple solution to this problem. If there is a $1000 limit on the value of the car before all the standard safety additions, then the owner has to accept $1000 from any other competitor for the car. This massively disincentives anyone from undervaluing their race car as it will simply be purchased for way less than it's worth. In real estate this would just result in wealthy people snapping up anything they thought was even slightly undervalued. Maybe value purchases can only happen when challenging a valuation with strong court-backed protection for the owner to ensure the valuation has been applied justly.

> The local cost of construction per sq ft to replace an improvement is reasonably easy to arrive at. So is the annual cost to maintain an improvement.

I'm not sure I agree with this, since construction costs are subject to a lot of government interventions that distort the market.

> The toughest part is making sure the process isn't corrupted

Exactly.

Property taxes are already commonly broken down into the value of the land vs buildings, IIRC.

FWIW, I just looked up my own property tax records and there's no breakdown, so not sure how common that is.

That said, it is done for property insurance, so I think your point that it's already done stands.

> FWIW, I just looked up my own property tax records and there's no breakdown, so not sure how common that is.

> That said, it is done for property insurance, so I think your point that it's already done stands.

I dunno how useful that will be - my insurance is based on how much it would cost to rebuild the house if it burned down.

This lead to the comedic result that what I paid for the house at the time was about half what the insured value was. My property tax is calculated on the selling price, though.

That comedic situation is exactly the reason your insurance works like that. The insurance company knows it's in your interest to burn it down and sell the empty plot so they only insure it in a way that prevents that.

At least for Seattle, the assessor's office has a breakdown but it turns out to be fairly bogus unless there's been a remodel or new building -- resulting in a new assessment. Quite a few cities also seem to have pretty bogus values on the books.

The building value by the county assessor's office is considered a standard for depreciation schedules. While it might not be useful for selling the property or building it - it does have value for accounting purposes.

What if you had a system where anyone can bid any amount on any piece of land. Whether the owner refuses the bid or not, the land is now valued at the price of the bid for tax purposes.

To avoid frivolous bids, bidders must place funds in escrow before making a bid which is then returned to the bidder if the owner refuses the bid or fails to respond within some number of days.

All bids are reported to the public although bidders can be anonymous.

Buying land that has buildings on it but not the buildings is an awkward situation that requires a further negotiation of a lease transaction to the building owner. Even if you could set something super complicated up with this bidding system I don’t think it would accurately value what the land would be worth empty.

Part III, concerning assessments, will post in a few days. Interested in your thoughts when that one goes up.

Isn't this already done as part of property insurance?

Inaccuracy isn't a very big component of this; assessing the value of land and structures isn't perfect but there's no obvious reason to think we're way better at one or the other. The point of this is that taxing the land only would lead to land being used differently, which would benefit society.

Suppose there is a plot of land which (from some omniscient point of view) would offer maximal benefit to society if a four-plex were developed on it. The point of a LVT is that, under a LVT, a four-plex would be developed on it, not because anyone forces it but just because that's what's in the landowner's best interest; whereas under the current system (in which the structure is also taxed) the landowner might find it more profitable to build a duplex instead. The deadweight loss is the loss to society when the landowner builds something that's in their best interests but not society's.

That's hard to prove for any specific piece of land, since we don't know what the omniscient-view "right" use of the land is. But if you accept the idea that there is an optimal use, and you you trust the whole idea of free market price discovery, it's reasonable.

Inaccuracy in the end is a HUGE component of this. If you can't have an accurate value for the land, the long-run incentives converge to a system where the land value assessors have a lot of power, and could use that power to screw you over.

> but there's no obvious reason to think we're way better at one or the other.

There’s a very good reason. Sales of buildings plus land happen all the time, whereas sales of just land are virtually non-existent in a lot of the places with the most valuable property (e.g. Manhattan). Without real sales to tether the analysis you are just guessing.

Buildings are demolished in Manhattan on a regular basis, granted not that often. There are real sales of empty plots.

Also if you know a building would cost $X to replace, but the plot with it sells for $X+$Y, you have some real information, not just guesses!

How much would it cost to replace the Empire State Building?

I don't know. I do know that 99 Church Street sold for $170 million, and was demolished, so that that figure is the land price (before adding back the cost of demolition).

a) You're implying that we use sale prices to set the assessed value of property today; I believe that's often not true. I happen to have the tax slip for a property in front of me, the assessed value is about 80% of what I paid for it five years ago. Assessments are already inaccurate, because they're more a product of politics than science; a LVT wouldn't magically fix that, but AFAICS it wouldn't necessarily make it worse.

b) You may not be confident in your ability to distinguish the value of the land from the value of the structure, but your insurer is. If you want to know e.g. how much your home's value would improve if you finished out the basement or built a garage, they will go through it with you on the phone. Sure, it's something of a guess, but a very educated one.

Actually there are empty plots bought and sold all the time.

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