What happens when the building is larger than some small towns and the location is all inside?
What happens when prefabrication makes construction so cheap even the middle class can afford to live there (and never has to leave to go to work, shop, get entertained etc)? What is the value of location then and what is the proper LVT to impose?
No need to speculate, as we know perfectly well.
1. Very tall or large buildings are only built in already densely populated areas, where land values are already high, so no practical or conceptual problem with valuations.
2. It makes no sense to build them out in the middle of nowhere, which is why this seldom happens (except maybe power stations and Arabs showing off), but if somebody were daft enough to do so, then the chances are that the location rental value would be nil or negligible.
3. Construction costs have got little to do with final selling prices. Final selling prices are fixed by the market, you subtract construction costs to arrive at residual land value.
4. The size or shape of the development (vertical city or horizontal city) is irrelevant, the total location value is independent of this.
5. There is no town or country on earth so large that "the location is all inside". At international level it is about trade. If we impose a trade embargo on Rhodesia, Iran or Russia and actually enforce it, we would see that living standards in the embargoed country would drop a lot and living standards in the rest of the world would drop a little bit.
The smaller the country being embargoed, the larger the loss to that country and the smaller the loss to the rest of the world.
6. If the owners of the building argue that all the value is internally generated and refuse to pay the appropriate LVT, then what happens if the government goes beyond a simple trade embargo and withdraws the police and fire brigade, builds a brick wall round it and cuts off water and electricity? What is the location value then? Nothing.
Therefore, any value in excess of 'nothing' is not generated internally, but by the benefits people on that site can access from the rest of society.
Sunday, 14 June 2015
My latest blogpost: Killer Arguments Against LVT, Not (363)Tweet this! Posted by Mark Wadsworth at 11:48