undefined | Better HN

0 pointsbrigandish3y ago0 comments

Any law will need provisions to prevent corrupt practices. Whether that is easy or difficult should be taken into account, but in this case I don't see the difficulty, because

a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods

b) As I pointed out at the start, someone else can buy the land at at a very low price.

> However, if someone bids on the land for that price you must sell.

So even if you follow that avoidance strategy, I'm going to buy your land on the cheap. Perhaps I'll have to raise the tax in the meantime without the comparable rent coming in because of the lease agreement you set, but I get your buildings at the end so that's basically become a mortgage.

Of course, that possibility could be removed by a rule like having a period where a lease is in the offing where prospective buyers can buy and cancel the lease, punishing those setting low rates.

Still, I think this a digression, it's hardly a steel man, which would be more interesting. We may as well say that income tax is rubbish because people can lie to the tax man about their income.

[1] https://resources.realestate.co.jp/buy/leasehold-rights-in-j...

0 comments

mlyle3y ago

> a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods

Your source effectively says the opposite-- some leases are limited, but "With an ordinary land lease right, the lease contract period is fixed but in practice can be renewed almost in perpetuity." and "The lease contract period under the Old Land Lease law is fixed, but the lease can be renewed almost in perpetuity."

Even the fixed terms for non-commercial use are generally very long-- "Land leased out to be used for single-family homes and condominiums can be leased out with a fixed-term land lease. The contract period is 50 years or more. "

> So even if you follow that avoidance strategy, I'm going to buy your land on the cheap.

I bid the NPV of the lease + the NPV of the land after the lease. If you outbid me, you're taking an economic loss. I can even afford to overbid a little, because I'm just paying a small percentage of my bid.

E.g. say a sane discount rate is 5% per year. Lease is 50 years. Lease payment is $1/year. True value of the underlying land is $500k. Value of land in 50 years is estimated to be $1M. Tax rate 1%.

NPV of the lease payments is $19. NPV of the land is $92,000. I bid $200k and pay $2k in tax (compared to $5k).

Sure, you could bid $200,001 and get the land, to get an asset with a net present value of $92,019. This is not a favorable transaction-- even if there's some building residual value at the end.

In the end, the only way to value the independent value of the land is going to be from some kind of assessment process. A bidding based scheme is not practical: separating the value of the land and building is really hard. (And if we start having people judge whether the pricing of leases, etc, is fair-- that's effectively assessment).

brigandishOP3y ago

> Your source effectively says the opposite

It's saying what is customary and possible. The landlord does not have to renew, I think that is quite clear from what was written in that article.

> Even the fixed terms for non-commercial use are generally very long

Because they have a land tax and a property tax. I didn't suggest to use Japan's law verbatim, nor would I, their system has a lot of unwanted side effects but it does encourage a lot of building.

> I bid the NPV of the lease + the NPV of the land after the lease. If you outbid me, you're taking an economic loss. I can even afford to overbid a little, because I'm just paying a small percentage of my bid.

Yes, but you didn't get to sign over that lease because I outbid you and it's now my land and the lease will not go forward because, to quote myself:

> 1 point by brigandish 21 hours ago | parent | context | favorite | on: High property taxes are good

Any law will need provisions to prevent corrupt practices. Whether that is easy or difficult should be taken into account, but in this case I don't see the difficulty, because

a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods

b) As I pointed out at the start, someone else can buy the land at at a very low price.

> However, if someone bids on the land for that price you must sell.

Of course, that possibility could be removed by a rule like having a period where a lease is in the offing where prospective buyers can buy and cancel the lease, punishing those setting low rates.

Your calculations are moot.

mlyle3y ago

> The landlord does not have to renew

The source you provided is clear on this for the non-fixed term variants. Here is another source:

https://resourcehub.bakermckenzie.com/en/resources/global-co...

> What are the usual forms of leases?

> Ordinary leases (with statutory right of renewal except in certain instances)

> Fixed-term leases (with no right of renewal)

Note that you also characterized the law as providing an upper bound on lease terms, when actually it's the opposite:

> such as ground leases must be 30 years or more except a fixed-term ground lease, which must be 50 years or more

I disagree with most everything you say, and I am not sure further discussion would be productive.

Aside from the minutiae: I do not think there is any reasonable way except assessment to disentangle the value of land and improvements in a way that tracks land value in the short term, which is required for a land value tax to yield its substantial benefits.

1 more reply

j / k navigate · click thread line to collapse