The following illustration presents the proper relationships governing the price of real estate and the typical mortgage. We note that price and "use value" are not the same. The use value is the rent and it is constant or very slowly changing as the area surrounding some physical location attracts more and more bidders for land rights near the cause of the clumping (jobs, opportunities for trade, or whatever). The structure itself (the house) costs the same regardless of where it is. And the tax rate does not change the use value unless the tax is in excess of rent. And this can never happen with an ad valorem tax. The use value of land in death valley is zip because I can't get a job there. In the example given, the use value of the home was $1500 per month. That is the amount I am willing and able to pay on a 30 yr. mortgage. Then I was told there was a $187.50/mo. tax in addition. The following numbers illustrate how a tax shift from tax on improvements to tax on land will allow potential home buyers to move into such homes and live there till they die without this extra cost.

The tax rate and the distribution of value between land and improvements are projected from my own home. The total sales price is the average assesment of the tax people, and the bank, and a real estate group and the monthly mortgage payment is arrived at using an on-line mortgage calculator with a few checks to sure I got a good one. All of the numbers are therefore real life numbers. They are not assumptions or guesses or opinions. The current distribution of structure value and land value were simply taken from the distribution that I see on my own tax statement.

P = R / ( i + t )

where P is the sales price, $225000
R is the rent (use value), $18000/yr., 1500/mo. (includes principle)
i is the interest rate, .07 = $15750/yr., $13125/mo.
t is the tax rate, .01 = $2250/yr, $187.50/mo.

IMPROVEMENTS:

P = $162,000
R = $12960 = ($1080/mo)
i = .07 = $11340 ($945/mo)
t = .01 = $1620 ($135/mo)

LAND:

P = $63,000
R = $5040 = ($420/mo)
i = .07 = $4410 ($366.67/mo)
t = .01 = $630 ($52.50/mo)

In this setup the tax man gets $2250 per year out of the deal. The proposed tax shift is a shift from taxation of improvements and land value to placing all the tax on land value. The shift is revenue neutral and homeowners and businesses pay the same amount of tax as they did before. The tax rate increases from 1% on land to 5.65% and the tax on the improvements goes to zero. Revenue neutral. Home buyer neutral. Home owner neutral. Business man neutral everyone neutral other than the land speculator that is sitting around sucking on a land deed and making no contribution whatever to the society. It ain't neutral for him. He is gonna get the big greasy wrench. The value of his vacant lot will take a very real hit as the potential sales price goes rather swiftly into the ditch. Nobody wants to pay $187.50/mo. to look at a vacant lot unless it might happen to be in the middle of downtown Manhatten.

P = $39841 (the gummint gets the money as opposed to a land owner)
R = $5040 (mortgage payment includes principle)
i = .07 $4410 ($366.67/mo.)
t = .0565 $2250 ($187.50/mo)

Due to the tax shift the price of the land just fell $23159. The location is still worth $5040 per year because I still have the same income at the job that I have in this area (the reason I am here). It matters not to me WHO I pay the tax/land-rent. It is what I pay to occupy this home in this location. The same house in death valley is not the same value.

P = $185142
R = $12960
i = .07
t = .00

The value of the improvements has increased by $23K but the price remains the same due to competition. The build price or rebuild price remains the same at $162000.

P = $201841 (total of land price and improvement price)
R = $16116 $1343/mo (from mortgage calculator) includes principle
t = .011 $2250/yr 187.50/mo
i = .07 $14129/yr $1177.26/mo

SOOOO!!! People who want to own their own home so as to have a place to live and not pay rent when they get old, and to be able to improve their homes and such may now be able to afford to buy a home. Before the tax shift the monthly cost of the home was $1687.50. With the tax shift that is reduced to $1530.50 per month.