If they could raise rents by the amount they would've been taxed, they would have. I'm happy to see more incentives against buying up houses for literal rent seeking.
If they could raise rents by the amount they would've been taxed, they would have. I'm happy to see more incentives against buying up houses for literal rent seeking.
>If they could raise rents by the amount they would've been taxed, they would have
They can’t raise rents higher because they are in competition with other rental properties. In equilibrium, if all commercial properties have taxes raised on them, (a) the majority of the market will raise rents to cover the cost of the tax and (b) those rental units that are no longer financially sustainable at the higher rate will exit the market (e.g. sell the homes to an owner occupant or redevelop the property if allowed to by zoning). Some fraction of property owners might take a haircut on their capital returns in the short run (the housing market is fairly illiquid) but the market will return to equilibrium in time.
Adam Smith himself argued that the portion of property tax derived from the land value cannot easily be passed on to the tenant. That portion is high in some important cases (detached houses, warehouses, and factory buildings in outer suburbs).
The reason is that rents compete on net profitability to the renter, not revenue. If rents go up, tenant profit goes down, and they move to lower value land further out where the lower revenue minus lower costs gives them their original profit. Buildings are affected uniformly by property tax and cannot be escaped in this way.
Therefore, your prediction would be most accurate in cases where building prices dominate the optimal land usage. Non-optimal uses would get redeveloped, as you point out, and building tax can be pushed to tenant, but the land tax component must be eaten by the landlord. The exception is for properties in a market where the owner occupier distortion allows them to sell at a higher price (can sell to a renter now or could redevelop for owner occupier in the future).
No. The suppliers (landlords) as a whole have always been charging the maximum that the market is able to bear. Just because rents are raised everywhere doesn't mean the market can bear it. It would push every renter to cheaper smaller worse units and push the poorest renters to homelessness.