Econ 156, Foldvary

Real Estate Economics

Problem set 1

5 points each.

Due Monday, April 14, on paper.

1. Does a tax on land value have any deadweight loss? Explain.

2. Does a tax on the value of buildings and other real estate improvements have a deadweight loss? Explain.

3. Can a tax on land value be passed on, at least in part, to a tenant, if the landlord was already charging what the market could bear? Explain.

4. Given an annual land rent of $20,000, a real interest rate of 5%, and a tax rate of 5% of the land value, and assuming these numbers are expected to remain unchanged, what is the market price of the land? (Credit is only given if you show your calculation.)

5. Assume zero inflation and that land rent equals the interest rate times the price of land. After a tax on land value is enacted, is there any real tax burden on a new owner of land? Explain.

6. If the tax rate on land value is one percent, and the real interest rate is three percent, what percentage of the land rent goes to taxes?

7. If the tax rate on land value is one percent, and the real interest rate is three percent, what is the ratio of the price of land with the tax to the price of land without the tax?

8. Who gains from zoning that reduces the amount of housing, and who loses?