Can you link to the MIT study? I am very interested to see basic economics proven wrong. The efficient nature of LVT follows directly from the law of supply and demand. Contradicting it amounts to contradicting the law of supply and demand. So I need to see this MIT study please.
It's linked up above in this thread. They showed that when property taxes are raised, the price of rentals goes up to absorb about 90% of the tax increase. So people end up spending more money on housing and less on everything else. Any new tax on property, even if it is just on the land, would have the same effect.
Rising housing costs tend to force people to move...this is nothing new and is happening now, at an accelerating pace.
Rising housing costs force people at the lower end of the wage spectrum to move. People making above a certain threshold just absorb the higher cost and save less for retirement or whatever. So basically, it causes gentrification.
The key then is to keep housing costs from rising. Since LVT reduces the acquisition cost of land, makes more land available, and makes construction cheaper, LVT would not make housing costs rise, in fact it would reduce them substantially by multiple mechanisms, and this is even before accounting for the increased wages if income taxes are eliminated.
How does LVT reduce the acquisition cost? The whole premise is that the acquisition cost is what the market will bear, and that the seller just doesn't get as much of it. So the acquisition cost should be the same, unless you're factoring in squishy considerations like people selling to avoid paying the tax on unused property, which may have a big impact on some markets and no impact on others.
If LVT replaces other taxes, then it's hard to say what will happen, but realistically, that will never happen, because no politician ever gives up tax income willingly, in spite of frequent claims by one party to the contrary. :-)
Standard property taxes, on the other hand, definitely increase housing costs. Property taxes on buildings, if you calculate their present value over the expected life of a building, amount to a 20-50% sales tax on buildings, which is tremendous burden on construction, and unlike LVT, is passed directly onto the consumers. Instead, we shouldn't tax buildings at all. With pure LVT, the nicest property on the block will be the most profitable (because improvements are not taxed, so the way to make money is consume the least land possible (which is taxed) and build as much as possible (which is all tax-free, including the income from it)). With standard property taxes, where LVT is very low, the worst property on the block is typically the most profitable (because buildings are taxed, and land is not, so the way to make money is consume as much land as possible, so you can soak up land rent, and improve it the least possible, so you can depreciate it to nothing, or even, maybe literally not improve it at all). This is the basic economics of slum formation.
To be clear, I agree that it's an entirely more fair alternative to property tax. However, I also know that I live in a mobile home park in the Bay Area, and that were it not for rules that make it hard for companies to shut down mobile home parks, the company that owns it could potentially make more money selling it than they would make in 1,000 years of operating it. And the 5% LVT number that I've seen folks throw around would mean that they would owe taxes every year that are equivalent to 50 years of income from the property, and thus would have no choice but to declare bankruptcy and kick 1,000 families out of their homes.
I don't see any other way that it could end. And there wouldn't be any place for those family to move, because pretty much the entire state of California would have the same problem.
Farmland is very low-value land, so it would not owe much LVT, meanwhile, farming is very capital intensive.
That's certainly true in a lot of states, but it isn't universal. For example, about a third of America's strawberries come from the Salinas Valley. That's about half an hour from the edge of the Silicon Valley. The average value per acre in Gilroy is just shy of half a million dollars. You can't really claim that a one-acre residential parcel in Gilroy is worth half a million dollars, while a field a few blocks away is worth a few thousand dollars per acre.
Right now, because of Prop 13, as long as those farmers don't sell their farms, they get to pay property taxes on the 1970s value of that land. Any reasonable re-assessment for an LVT, however, would likely result in their taxes going up by several orders of magnitude, as land that was bought for hundreds of dollars per acre would be assessed at hundreds of thousands to millions of dollars per acre. So they would really have no choice but to shut down all the strawberry fields and build high-density housing.
Seeing the pattern yet? It probably would create a lot more housing, but a whole lot of people would also get seriously screwed and lose their shirts.