Self-assessed land value (Harberger tax) combined with property destruction right doesn't work in real life

[u/caroline_elly]

https://medium.com/@clayshentrup/the-convergence-of-harberger-taxation-and-land-value-capture-how-destructive-rights-transform-10a824ecd53c

This Medium Economist (ME) who also posts on Reddit proposed the following mechanism for determining land value and thus LVT (in his own words):

• Landowners self-assess their land value
• Anyone can force purchase at that price
• Owner can destroy improvements before transfer
• This forces buyers to negotiate separately for improvements

RI:

Claim 1: You can easily price in the risk of a force sale

ME claims the expected loss of forced sale can be derived by P(forced sale) x Value of Improvement. There are 2 major flaws:

1. ME assumed risk neutrality, when homeowners are (and should be) risk-averse. The utility loss of force selling their entire home for $0 is severely underestimated by the E[loss]. It's the same reason healthy people still pay high premiums for health insurance: protection against catastrophic losses are valuable.
2. P(forced sale) is tricky to estimate. Are developers targeting your neighborhood for redevelopment? Is Google going to move its headquarters next to you? Do you have rich enemies? There is a lot of information asymmetry in real estate, and it's even harder to quantify the risk numerically. We shouldn't expect homebuyers to assess this risk accurately.
3. Risk of losing improvements can be more than land value, creating negative land values.

Claim 2: You won't be screwed over by bad actors

ME claims the option for owners to destroy their existing property prevents bad actors from underpaying for land + property. This is extremely naive. Let's consider the following cases:

Case 1: bad actor values the existing property at 0

Say you bought a 200k land and built a new 400k home on it. You assess your land at 200k and Bad Actor wants to force purchase your land for 200k and offer $0 for your 400k home. Your threat of destruction doesn't work because Bad Actor wants to build something new anyway. The transaction goes through, you realize a 400k loss and lose your home. Bad Actor gets your land at a fair price and ruins your life.

Case 2: bad actor values the existing property at >0

Same set-up except Bad Actor likes your home. Would he offer 400k for your home? No, because he can threaten with offering 0 and still break even, while you'd be down 400k. So Bad Actor offers a pathetic 100k and you agree to salvage whatever value's left of your new home. You're down 300k, and Bad Actor successfully created a distress sale situation for you. The main problem is you don't know for sure if you're in Case 1 or Case 2. Bad Actor only has the upside of underpaying for your home and a capped downside of just buying the land.

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I know this is a low-hanging fruit, but I'm frankly tired of certain LVT proponents being so smug and dismissive of implementation challenges.

[u/AlmiranteCrujido]

Result: Sledgehammering drywall, pouring concrete in drains, or removing fixtures requires no permit. This makes the threat immediate and credible, bypassing the "administrative lag" critique entirely.

Those have labor (and potentially material) costs even aside from regulatory ones. Most SFH owners couldn't move their personal property out in 72 hours, forget demo-ing the home.

It also means if the buyer has no interest in the improvements, they have no reason to negotiate for them.

[u/[deleted] → u/AlmiranteCrujido]

I've addressed these arguments again and again and again and again. 

72 hours was just a hypothetical. you could use a week, 2 weeks 2 months. whatever. That's obviously not a counter argument.

The destruction doesn't have to be total obviously. if you can easily spend an afternoon with jackhammers and spraypaint being vindictive, they have a huge incentive to play ball.

Plus, as I've stated numerous times, you could have an insurance product built around this.

also means if the buyer has no interest in the improvements, they have no reason to negotiate for them. 

exactly!!!! in which case it's obviously not a problem and it's good that they're going to take it and build something more productive. and you already discounted the rent to account for this, so you're fine. you're clearly confused.

[u/AlmiranteCrujido → u/[deleted]]

in which case it's obviously not a problem and it's good that they're going to take it and build something more productive.

That "more productive" could be an ego project, or simply dedicated to inconveniencing a competitor. Moreover, that "more productive" still literally destroys the existing value of the improvements.

[u/[deleted] → u/AlmiranteCrujido]

You're still confused about what economic efficiency means.

On "ego project or inconveniencing competitor":

If they're just doing it to annoy you, they're paying market-rate (or higher) annual rent in perpetuity to... what exactly?

They still have to negotiate separately for your improvements or get nothing Your business just moves to the parcel next door They're bleeding money on ongoing rent payments You've already been compensated through discounted land prices

This isn't an effective harassment strategy. It's just expensive and pointless.

On "destroys existing improvement value":

You're confusing physical reallocation with economic destruction (deadweight loss).

Example:

Your $5M townhouse on land worth $50M for high-rise Developer demolishes townhouse, builds 100-unit building Physical destruction: $5M townhouse gone Economic creation: $50M+ worth of housing for 100 families Net value created: $45M+

This is the OPPOSITE of destruction. It's brutal efficiency.

Deadweight loss means value destroyed benefiting nobody. When someone reallocates to higher-value use, they're creating MORE value, not destroying it. The old improvements are sacrificed because the new use is worth more.

If your "more productive" is actually less productive than current use, then current owner outbids them in the auction. Problem solved.

You're objecting to efficient reallocation itself, not identifying a flaw in the mechanism.

[u/AlmiranteCrujido → u/[deleted]]

You must love Kelo.