Economics

These sorts of narrow, “feel-good” taxes are the wrong way to go. People find loopholes to avoid paying them.

Georgist land value tax (LVT) is straightforward and cannot be avoided. It incentivizes owned land to be utilized, otherwise it becomes a huge liability. It does not disincentivize improvements (building stuff) because taxes are tied to underlying land values, not improved property value.

I was just in SF a month ago for the Dead & Co shows, and it really is astonishing how empty a lot of storefronts are, especially where we were staying up near North Beach/FW. Also too, the lack of late night food; in all the years I've been going to SF, you could always count on a noodle bar in Chinatown at 12-1a to be open, but not anymore. Not really anything except fast food. COVID wrecked that town. I've also never seen so few homeless people walking around, but I didn't head over to Oakland.

That's certainly the preferable solution, I guess it's worth asking if it would work out that way.

So for example, I own 100 houses and I earn £100 per month for each one. (Values for purposes of illustration only!)

Let's assume 10% are empty at one time.

With an income of £9,000 per month I'm paying 20% tax on that, £1800.

Up that tax to £2000 under this scheme, costing me £200 per month.

so do I drop rents by £5 per building which is going to mean my income changes to £9500 minus £1900 tax for a net earnings of £7600

Or do I increase rents by £5 and keep running with 10% empty buildings? Earnings are now £9450 with a tax bill of £2100. Net earnings of £7350 while holding onto hope that I could rent out some of those other empty buildings?

Put simply, if I'm the kind of person who owns a 100 buildings do you imagine my instinctive response is going to be to cut prices or to pass on my costs to tenants?

It makes sense for landlords to hold out for higher rents sometimes. In NYC and probably other places, landlords can get tax breaks if they agree to rent stabilization rules, which set the limit for rent increases each year. One way for landlords to take advantage of this arrangement in to keep units off the market until they think rents are relatively high so that they can get the most out of the allowed increases, while still getting the tax break.

Also, with property values increasing, it can be very tolerable just on to hold onto a vacant unit. What do you need an annoying tenant for if the property keeps appreciating and you can even maybe get a line of credit out of it?

In the context of imputed rent, it doesn't really matter what the owner personally gets out of keeping a property to himself. If the market rent for the unit is $2,000/month, that means the owner is getting $2,000/month worth of some kind enjoyment out of having it. That's because if he didn't own it he would have to pay whomever did $2,000/month for the privilege. It's not immediately obvious, but the income is the rent you don't have to pay when you are both the owner and possessor of a piece of property.

I wouldn't say that I was leaving money on the table. There's a difference between gross income and net income - my gross income would have increased if I rented my house out, but my costs would have increased as well. Once I accounted for the cost of my time, of the additional maintenance, and of the risk that I would get someone who refused to pay rent, trashed the place, and took a year to evict, I decided that the net income from renting would be negative.

I was just a guy with a house, not a professional landlord. I think a professional would have found a profitable way to rent out a house like mine (because it wasn't rent-controlled). But these vacant properties are already owned by professional landlords - I'm not sure who you think would find a way to make money off of renting them out if the professionals can't. And why would someone buy a property that doesn't make money?

(I suppose some people would buy them for a low price as a bet that the restrictive regulation will be repealed someday. Where I live, you can already get cheap rent-controlled property in very expensive parts of town with the hope that you might eventually be able to get the tenant out of there. But I don't see this as a viable large-scale solution.)

The point I'm trying to make is that if renting the property out is a net loss and whoever owns it is required to rent it out, there's almost no reason for a person who intends to comply with the law to want to own the property. Forget selling - why would anyone even take it for free if it was just a permanent money sink?

Honestly if a potential rental unit won't cover the costs associated with renting it, I can't think about how salable it's going to be. Seems like a market failure and my guess is that it probably has to do with the extensive regulations on rentals in NYC and how hard it is to get rid of a bad tenant.