I understand how it creates an incentive to make more efficient use of land. How does it prevent a property owner from passing that LVT onto the tenant renting space on the land (if applicable).
In: Economics
Competition for land. If landlord A raised rent because of the LVT, then the renter would look to one of the landlord’s competitor, landlord B, who would undercut the rent increase. Thus landlord A would undercut that undercut. Rinse and repeat until prices are back to where they were prior to the tax. The landlords are now faced with higher taxes but no additional rent revenue, thus they are paying the entirety of the tax.
The landlord can only sell his land to avoid the tax, he can’t produce less land (he didn’t produce it in the first place, he merely owned it) and if he were to stop renting, he’s now paying the tax but getting no revenue. Thus, the landlord continues to rent out the land, but now with the added expense of the tax and no additional revenue to offset it.
Bonus, since the LVT is only taxing the unimproved portion of the land, the landlord always benefits by finding more profitable improvements to the land. So that means more valuable houses, higher density apartments, higher desity office space.
He’s discouraged from underdeveloping valuable land, i.e. fencing off an abandoned lot in downtown, because his taxes would be the same regardless if he improves it or not, so he might as well improve it, or sell it to someone who will.
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