World, Land Value Tax, New Unicorns

World

The ongoing events in Israel are horrific and tragic. The difficulty of predicting the onset and conclusion of acts of war is on par with predicting natural disasters. Conflict can end just as suddenly as it started or last a decade. The end of the conflict in Ukraine is similarly uncertain. 

In 2024, 50% of the world’s GDP will go through significant elections, including Taiwan (January), Indonesia (February), Russia (March), India (April), UK local elections (May), EU Parliament (June) and US President (Nov). Expect more volatility and tension over the next few years, but remember that volatility is not the same as risk. Keep liquidity needs aligned with expenses, both anticipated and unanticipated. Keep in mind how quickly the world is changing. AI might not change the world in ‘24 or ‘25, but it will undoubtedly be deeply integrated into everyday life by 2030. Credit is attractive for the first time in 15 years, so consider how this plays into allocations in ways it hasn’t for the past decade.

Land Value Tax Update – Detroit

I first wrote about Land Value Tax back in June. For a refresher, the concept states that land should be taxed instead of the structures on the land. Today’s property taxes are based on the value of the structures and not on the land. Improvements increase the assessed value, which increases taxes. Consider that taxes are often used to disincentivize behavior. Also, unbuilt land is barely taxed, which explains how wealthy families can sit on unused urban land for decades. It costs them almost nothing to hold while the value appreciates thanks to neighboring construction. Taxing the land, not the structures, reduces the relative tax cost for the owner as properties are improved, incentivizing building and disincentivizing land hoarding. 

Detroit’s mayor, Mike Dugan, is working to reduce local property taxes from 2% to .6% and implement a new land value tax of 11.8%. 11.8% is higher than most land value tax experts would suggest, but that’s a point that can be argued down the line. Typically, advocates want to see LVT between 5-8%. You can read more about the nuances and details of the plan in the Economist article. 

If it goes through, Detroit would be the first major city in the world to implement this policy nearly 150 years after Henry George popularized it. It would be a great step in the right direction. Entrenched special interest groups are the biggest enemy of LVT, and the obvious detail is that there are fewer of those in Detroit than in any other American city due to its 2013 bankruptcy.

“The hope is that taxing land more will in fact spur development. Right now, says Alex Alsup of Regrid, a data firm, Detroit has “a very pure version of speculation”. As downtown booms, people who bought land nearby years ago—such as the owners of the car parks—merely have to wait for investment nearby to raise the value of their own land. Higher taxes might force them to sell up to people who will build on it. “It is entirely possible that this land tax has the ability to free up properties,” says Kofi Bonner, the ceo of Bedrock.”

New Unicorns – Ascend Elements

Unicorn creation happens when a company closes a new investment round, valuing it above $1B. I keep track of new unicorn creations to see what types of businesses successfully raise capital in this environment. It helps clarify the wide range of narratives and outcomes circulating the VC and startup world.

Since many of our readers are in MA, I wanted to highlight local company Ascend Elements, which raised $542m in this latest round for its role in the lithium battery recycling process. There were two lithium-related companies in the September unicorn cohort.

Five of the seven new unicorns minted in September received their first round of funding as recently as 2019. The path from concept to unicorn continues to be extremely fast when the correct elements align. Don’t get too bogged down by doom scrolling or the many narratives around our collective challenges. There is always meaningful progress happening somewhere. You just have to look for it.