Erdmann Housing Tracker · Housing & Cities
TIER 4 Fri, 15 May 2026 14:01:38 +0000
Under current conditions in most locations, with some reasonable assumptions, it seems like we can say that property taxes are land value taxes. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ | | ---|---|--- | | | Forwarded this email? Subscribe here for more --- --- # Property Taxes are Land Value Taxes | | Kevin Erdmann --- | May 15 --- | --- --- | | | --- | | --- | | --- | | --- | | READ IN APP --- Under current conditions in most locations, with some reasonable assumptions, it seems like we can say that property taxes are land value taxes. We already have de facto Georgist tax policy. We just need to raise the rates and make them more universal and equitable. Upgrade to paid Let's start with some basic stipulations: 1. The price of a structure is the cost to build it. 2. The rent on a structure reflects the yield the market requires, based on the price. 3. The rent on land reflects the utility and scarcity of the location. 4. The price of land reflects the yield the market requires, based on the rental value. 5. The cyclical neutral yield on residential structures with average maintenance requirements is about 8%. 6. The cyclically neutral yield on land is about 3%. Actually, the relative yields don't matter that much to the conceptual point here. The main assertions driving this analysis are that the price of the structure is fixed by the cost of construction, the rental value of the whole property is fixed by supply and demand for living in that location, and the structure and land are bundled so that the value of one affects the value of the other. Let's say there is a house worth $600,000. $300,000 is structure and $300,000 is land (locational amenities and/or scarcity premium). The rent is based on local supply and demand for homes, and the rental value above and beyond the rent required to provide an 8% return on the structure flows to the land value. | | ---|---|--- Now, let's add a 2% property tax. | | ---|---|--- The $2,750 rent was based on supply and demand, so it doesn't change. Since it doesn't change, the quantity demanded doesn't change. So, the $2,750 rent still seeks a $300,000 structure, which requires $2,000 rent. That leaves $750 that flows to either taxes or land value. At a 2% property tax rate, the tax bill would be $600/month, leaving $150 of excess rent still not claimed by the cost of construction or taxes. That would equate to $60,000 land value. In other words, where there is any amenity or scarcity value attached to land, _any_ marginal increase in property tax is a 100% land value tax. In this scenario, the market would settle at an equilibrium that was physically equivalent to the starting scenario. That street would fill up with $300,000 homes. They would just be homes on $60,000 lots instead of $300,000 lots. On homes that don't have any residual location or scarcity value, property taxes increase the rent required on a given structure, and so the market would settle at some middle ground, depending on demand elasticities. A 1% property tax increase would lead to a combination of lower prices/high rents totaling about 10%. But, even in this case, I think it would reflect Georgist goals, because from a tenant's point of view, it would raise the rent on structures, but not raise the rent on locational amenities. That would nudge demand toward locational amenities. I suppose that would also nudge demand toward places with a scarcity premium and raise the relative demand for moving to regions where zoning is a binding constraint on supply. Also, property taxes would affect improvements. If a $100,000 addition was built on the $300,000 structure above, the total rental value, whether taxed or untaxed, would increase to $3,417. However, the additional property tax would lower the residual land value by $40,000, so the net property value would only increase by $60,000. However, the rental income would reflect the cost of construction. The post-tax yield is higher on the property with the property tax than on the property with no tax, in this example. The owner gains in yield what they lose in value in the higher property tax scenario. This would raise the supply curve on structures and raise the demand curve for amenities. That would be fine. Right? The analysis starts to get tricky on some margins, but the main point here is that, where homes have market value higher than the cost of construction, property taxes _**are**_ land value taxes. Upgrade to paid You're currently a free subscriber to Erdmann Housing Tracker. For the full experience, upgrade your subscription. Upgrade to paid --- | | | Like --- | | Comment --- | | Restack --- (C) 2026 Kevin Erdmann 548 Market Street PMB 72296, San Francisco, CA 94104 Unsubscribe