If anything, it encourages building more, so that the income from the rent can be used to the pay the LVT.
I'm not talking about long-term, but the initial effect of LVT coming into effect. If the landlord has to pay more then that's an increase in cost. Landlord income was likely at equilibrium before LVT. Those that could afford to lower prices to outcompete others probably already did so. As a result I don't see how we can expect landlords to eat the cost instead of passing it on.
>If anything, it encourages building more, so that the income from the rent can be used to the pay the LVT.
Sure, but this also requires housing to be as profitable (or more) as other uses of the land. It might make sense to turn that housing into something else.
Just to be clear, I'm not arguing about what it would be like in the long-term. I'm talking about the transition between going from not having LVT to having LVT. It's not at all clear to me that this wouldn't disrupt housing.
Right, but how does that lead to less housing? It's not like the landlord would stop renting the apartment and just hold it empty right after an LVT is implemented, since they would to pay the LVT either way. Most likely, the landlord would sell the building and land to someone else, who would then develop it to something that would provide enough income to cover the LVT obligations (say, a taller apartment).
Your claim also assumes that the LVT will be greater than the current property tax obligations. I don't think that's a given. The LVT for buildings that are using land efficiently probably would be lower, since the would no longer have to pay tax on the building (which is higher for a multi-unit building compared to a SFH).
As a side note, I am in favour of the government providing a subsidy to current landowners when a LVT is implemented, to compensate them from the lost land value (essentially "buying them out"), but I don't think that would be economically necessary.
> It might make sense to turn that housing into something else.
Yes, this is a possibility. But if that happens, then it's a sign that the demand for new housing is a low, so it makes sense to not build new housing (or convert existing housing). In regions where there's a housing shortage, a developer would be able to make a large profit building new housing, and thus would do so.
Why on earth would you assume that a landlord charging market rent would lower their prices when there's nothing forcing them to?
>As a result I don't see how we can expect landlords to eat the cost instead of passing it on.
Heavily leveraged landlords would be able to pass the costs on in the form of defaulting on mortgages. Non-leveraged landlords being forced to eat the costs would likely be very unhappy about being forced to "eat the costs" (lose their stream of unearned income), but they would have few other options. Violence would be a significant possibility.
