> Isn't your floor not "rent falls to the construction costs" but "rents fall to the point of the best alternative investment to construction"? Which is going to be a (much?) higher floor?

So that was assuming that "construction costs" includes the opportunity cost of any existing use of the property. Obviously for a vacant lot this is negligible. But even for e.g. an existing single family home, the value of one unit of housing isn't much of a loss when you're replacing it with 50 units on the same land. But you're right that this could be non-negligible.

And this is another place where zoning is a bane, because you have a place that has a bunch of single family homes and reaches saturation (no more empty lots) so you have to start building taller buildings. That means land values start to go up, which means developers have the incentive to start rationing land. No sense in building five 4-story buildings when you can build one 20-story building for roughly the same total construction cost and a fifth of the land cost. Except that 20-story buildings are prohibited by zoning, and by the time they're allowed you're already thick with 10-story buildings whose opportunity cost of replacement is much higher. High enough to justify replacing them with 50-story buildings, except that zoning still prohibits those. Restrictive zoning sucks.

> I suspect that residential property ownership and use will also break the math here a bit, where the primary purpose of the purchase is not as a money-making investment, but instead as a place to live, so competition for that will also push up the floor of land prices.

Not really. If you can build a high rise condominium tower and sell units for $50,000, who is going to pay $400,000 for the same number of square feet from a detached single family home two blocks away? Most people would take the $350,000 profit, move into the condo and sell their existing home to the developer to make into more condos.

> You're still gonna potentially need a lot of tax revenue for stuff like advanced healthcare assistance

A lot of these costs really do go down significantly with rents. Hospitals for reasons of emergency response time have to be located in high density areas and take up a lot of real estate. Those costs fall. The cost of living in the area declines, which allows the hospital to attract workers without paying such high wages. Everything gets less expensive, even healthcare.

> so in terms of flattening out cost of living why not just go with a straight wealth tax?

Wealth taxes are crazy inefficient. You have a company which is trying to invest all its profits into R&D, which is what we want, and here comes the government to say that's not a deduction. You have a company which is just scraping by in an efficient competitive industry with high capital costs and low consumer prices, owes the same in taxes as those guys who monopolize healthcare products and raise the price 10,000%; goes out of business and causes the industry to consolidate and raise prices. You have a company which is still owned by the founder, who understands the industry and cares about the customers, but now has to sell shares to pay the tax and control of the company falls to MBAs focused on quarterly profits.

It's basically an attack on efficient capital-intensive businesses with low margins in favor of bloated monopolistic rent-seeking businesses that can produce yields in excess of the wealth tax rate.

Plus, perverse incentive to move wealth into anything the wealth tax doesn't count, or capital flight into other jurisdictions. And promotes consumption over savings for the middle class, increasing wealth inequality (higher shift from savings to consumption for the working class than the rich) and financial vulnerability to e.g. job loss, which suppresses wages by making it harder to quit or hold out for a better offer when unemployed.

The correct way to deal with r > g is to do nearly the opposite of this -- give every regulatory and tax advantage to upstarts, efficient competitors and small businesses so they can unseat incumbents and create new wealth not in the hands of old money, only to be themselves defeated in the next generation if they don't stay lean and competitive. There is no Mark Zuckerberg if there is no single social network with a billion users under the control of a single company, no Steve Ballmer or Bill Gates without the Windows desktop monopoly. They'll fall to competition, not taxes.

But if you really need tax revenue, try taxing rents. Promotes home ownership.