Downtown Seattle holds some of the most valuable real estate west of Minneapolis and north of San Francisco. Yet a stroll through Seattle’s urban core reveals unwelcome surprises: rundown, decrepit buildings; empty land parcels; and surface parking lots on prime real estate, like the one below, just blocks away from high-rises worth tens or even hundreds of millions of dollars.
Is an underused (at midday), 63-spot parking lot the new normal for downtown Seattle? It shouldn’t be. Proximity to jobs, people, retail, and transportation should have made parcels like these ideal targets for new homes or office buildings. Yet a two-decade boom in downtown real estate has passed these properties by. For example, the Eitel Building is a historic building that is a stone’s throw from Pike Place Market, Seattle’s number one tourist attraction, and has been unoccupied above the ground floor since the 1970s. This marks four full decades of neglect and decay.
More striking is the juxtaposition with its immediate neighbor—a 38-floor glass and steel structure touted as “the West Coast’s most successful condominium high-rise.” Sorry, no vacancies, and resale prices begin at the low $1,000,000s!
These pictures present just a few examples. There are plenty of other badly underutilized properties dotting the landscape of downtown Seattle, and there are undoubtedly similar cases in other major cities throughout the Northwest and beyond.
So how is it that, even in the core of the Pacific Northwest’s largest metropolis, on some of the most valuable real estate within city limits, you can find so much land essentially still sitting idle?
One of the biggest reasons is also one of the most obscure: the structure of the property tax.
Under today’s tax rules, leaving a lot empty, or letting a building slowly rot, gives the property owner a light tax bill, thus allowing landowners to hold onto under-developed properties year after year after year. In essence, these land speculators become free-riders: their properties rise in value, sometimes dramatically, because of the hard-fought efforts by neighbors and city government to create vibrant and attractive downtowns. Yet many land speculators detract from the value of their neighborhood by leaving productive land derelict or by allowing buildings to disintegrate.
So what’s the solution to all this underutilized land? Perhaps the simplest one is an idea that’s been around since the late 1800s: changing the way we tax property to discourage speculation and encourage compact, infill development.
One of the best options is a land-value tax, or LVT. In its purest form, the LVT taxes only the value of land itself, while leaving buildings and other improvements tax-free. Shifting taxes from buildings to land would make downtown land speculators’ tax bills soar—making it harder for them to profit from leaving valuable land inactive, and creating powerful incentives to put high-value land to more productive uses. In a way, the LVT can be described as a tax on sprawl; when implemented well, the LVT encourages a more built-up, vibrant downtown, diverting growth from lower-value properties in the suburbs.
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The greatest advocate for the tax was 19th century economist Henry George, whose seminal work Poverty and Progress (1879) argued for a “single tax” on land, which he thought was enough to fund the American government of his day. His idea has stayed alive ever since, guided along both by a loyal band of thoughtful proponents and through interesting community experiments in Arden, Delaware (1900), and Fairhope, Alabama (1894), which are extant, small Georgist single tax “colonies.” On a larger scale, Altoona, Pennsylvania in 2013 became the only US city that has a pure land-value tax.
These examples point to five key virtues of a land-value tax:
- Land-value taxation discourages speculation and encourages development of high-value properties. By shifting taxes from buildings to land, LVT makes it more costly for speculators to hold onto underutilized or vacant sites. Taken together with a lower tax on land improvements, LVT encourages downtown landowners to develop vacant or underutilized properties, destroy decrepit or unoccupied structures, upgrade existing buildings, and build new places for people to live and work.
- Land-value taxation is more economically efficient than most taxes. When you tax something, you get less of it. Taxing sales reduces sales, taxing income reduces income, taxing buildings reduces building. Such taxes subtly distort the decisions of consumers, households, and businesses. But a land-value tax mostly discourages land speculation, particularly on the highest-value land. Consequently, it creates fewer economic distortions than most taxes.
- Land-value taxation is more progressive than other taxes. Compared with regressive property and sales taxes, the LVT is remarkably progressive. The tax burden falls on landowners, and land ownership rises with income.
- Land-value taxation is fairer than many other taxes. Location, location, location—that’s what gives land its value. Land speculators benefit when their neighbors improve their land, and when their communities invest in infrastructure and livability. So in a way, the LVT puts a tax on benefits that a landowner didn’t earn—either through their own labor or their own investments.
- Land-value taxation revenue is adequate and stable. How much revenue could an LVT generate? Well, it obviously depends on how it’s designed. If planned well, an LVT could be structured to provide every bit as much revenue as today’s property tax. Revenue from the LVT could even replace other regressive taxes, including the sales tax. And unlike the sales tax, which decreases as consumers purchase less, an LVT could provide a more stable revenue source. Finally, it would be possible to phase in, gradually ramping up the LVT while reducing other taxes. Call this a straightforward tax shift.
So with all these benefits, why aren’t land-value taxes more widely discussed in today’s political debates? After all, in Seattle we’re constantly discussing changes to the property tax rate to pay for schools, parks, and other amenities. So what stops us from also discussing changes to the structure of the tax itself?
One reason is that, for Washington and Oregon, there are a host of complicated legal questions that might impede LVT implementation. State constitutional language dealing with property tax might need revisiting. Structurally, the adoption of any type of land tax would be difficult—but not impossible. A second reason an LVT would be difficult to employ is that, for both lawmakers and laymen, the LVT can be confusing, even counter-intuitive. It takes some work to explain why taxing land rather than buildings can spur the sorts of compact development that make cities more livable and vibrant. And it takes even more work to describe the details of how the tax would be implemented, and how it would affect people’s actual tax bills.
Certainly, plenty of folks have a vested interest in the status quo. And land speculators will undoubtedly fight tooth and nail to keep from having to pay higher taxes on their underutilized land. But just because something is hard doesn’t mean it isn’t worthwhile. In the end, what’s really required to get the LVT moving are equal doses of legal and political daring from determined champions that are willing to make the case for a fairer, more effective tax system.
Actually, almost all vacant and/or surface parking lots Downtown are already spoken for.
2nd & Pike
2nd & Pine
Hill 7 Project in Denny Triangle
Etc etc etc.
Thanks for your response Zach and these great links.
Surface lots and underused buildings are being developed across Seattle, great point. But consider what an LVT would do for a site like the Publix Hotel, located in the International District and owned by Uwajimaya. The building is currently slated for summer 2014 rehab, but it has sat, closed, since 2003. Its redevelopment has certainly been long coming.
That’s also a function of the seriously polluted dirt fill and the liquefaction zone that is right there. It’s expensive to clean and expensive to build new construction in that spot.
Liquefaction source doc: http://your.kingcounty.gov/dnrp/library/water-and-land/flooding/local-hazard-mitigation-plan-update/liquefaction-hazard-map.pdf
There’s another, similarly abandoned property at 7th on the south side Jackson that is a source of *some* of the soil pollution issues in that neighborhood. Clean-up is expensive, foundations are more expensive, subterranean anything is expensive there.
Down here in Portland, a group of people who would like to see Old Town’s many surface parking lots redeveloped have taken an innovative approach to this basic idea:
Rather than simply taxing the lots, they’re proposing a “tax and subsidize” plan that would tax the lots, but put the resulting revenues into an account that the owner (or a future buyer) could apply toward the redevelopment of said lot.
Pretty smart approach, no? The parking lot owners don’t like it, but it would encourage them to redevelop their property, rather than just sit on it.
Personally, I think it’s brilliant.
Simply untaxing the building value would give the lot owner more than enough incentive to build and requires less accounting overhead.
Since the tax would be on those who park, rather than the landowner, I don’t think John Russell’s proposal was necessarily a good one. Greg Goodman himself was quoted as saying: “And if there’s a parking tax, I don’t pay a dime.”
I proposed an alternative to Russell’s proposal http://plangreen.net/land-tax-downtown/modeled on a proposal from Chris Keitig’s Streets MN blog: Tax Land, Not Buildings. Both of our proposals–Chris and mine–support the above proposal rather than Russell’s.
“west of Minneapolis and north of San Francisco”
Is there anything else west of Minneapolis and north of San Francisco?
I suppose that’s unclear…but what we meant was the million or so square mile box that includes every part of the US that is both to the west of Minneapolis and north of San Fran. That does include Salt Lake City, Portland, Denver, and lots of medium-sized cities such as Spokane, Boise, etc., etc. Downtown Seattle, Portland, and Denver have some of the costliest real estate…and while we didn’t do a full comparison of land values in Denver vs. Seattle, I did do some spot-checking…and it seemed to me that Seattle properties generally are assessed for more than comparable properties in Denver. That sort of assessment has its shortcomings, but it made me feel like the claim was accurate: downtown Seattle definitely has “some of the most valuable real estate” in that big box.
So, if I develop I pay the same taxes, even though I have quadrupled the value of my combined asset. Nice subsidy for developers. I bet Chris Hansen will especially like it.
I’m not sure who Chris Hansen is, but that’s one way to look at it. Another way is that it’s a tax advantage for people who build compactly on the most valuable land; and a tax disadvantage for land speculators who let land sit idle, and potentially also for developers who build low-density, large-lot housing. To me, it’s less of a subsidy for developers in general than a system of incentives that help encourage infill and prevent sprawl.
The tools employed around here to limit sprawl are the 1990 GMA statutes and King County’s ordinances implementing them. A tax like this might encourage immediate development of parcels, but it isn’t going to curb sprawl.
Are there other countries that have a land value tax, or is Altoona the only experiment that we can learn from, after it’s been in place a few years?
In the U.S., Pennsylvania has several examples that we can learn from.
Internationally, Sydney is a terrific example of a major city using a LVT to spur compact development on land parcels.
Taiwan, Singapore, Hong Kong, Estonia.
Denmark and Switzerland have some form of LVT.
In the past: Japan during the post-WWII reconstruction. Pittsburgh in the 80s and 90s. Detroit and Cleveland in the 1930s. California from about 1900 to 1970. Vancouver… not sure exactly when.
The land value tax would be useful as a tax on speculation, but it wouldn’t really work as a tax on sprawl.
The biggest issue is that sprawl is a metrowide problem, not a citywide one. Even if the current system was switched out for an LVT, individual cities would continue to have their own levies and tax rates. That variation would distort the correlation between taxes owed and the value of the land across city boundaries.
Even if you could have a metrowide property tax, an LVT would only address the supply side problems of sprawl. On the demand side, it actually exacerbates the problem. Yes, landowners would want the highest possible use for their properties. But an LVT would ask land users to pay the most taxes for the properties that we most want them to develop. That’s counterproductive.
Think of building values as a fixed amount. They’re essentially the same whether they’re downtown or in the suburbs. That mutes the percentage difference in values between the suburbs and the urban core, to the advantage of the core. Removing building values from the property tax equation would actually increase the percentage difference between core and non-core properties and make suburban properties more attractive in comparison. Corporate campuses, retailers and homebuyers that don’t feel a particular need to be downtown would have more reason to locate in suburbs and exurbs than they already do.
I wonder if you could create some hybrid system to get around this. First, you’d need a metrowide property tax system that doesn’t allow for variation across cities. This poses serious local control problems, but we’ll set those aside for this thought experiment. Second, you’d have a baseline tax that uses an LVT to determine the amount property owners pay. This would discourage people from just sitting on property. Finally, you’d have a sprawl surcharge that’s nonexistent in the urban core and increases steeply the further out you go. You could put this money into transit or other urban development. If that’s not politically possible, you could reserve it for funding suburban and exurban infrastructure. At the very least, this would put the cost of sprawl on those who benefit from it.
I’m pretty sure that I disagree with you that taxing properties that we want people to develop is “counterproductive.” I think that’s exactly what creates the incentive to develop intensely where property values are highest. Consider the flip side, in which taxes are only levied on buildings and not on land value. Then the incentive would be to build as little as possible downtown.
But I do agree that there’s a “pushme-pullyou” effect to LVT. For some set of land uses, a landowner might seek to find low-value land for a high-value building. As I recall, modelers have simulated the effect of a broad LVT, and found a general reduction of low-density development. But some LVT theorists say that LVT encourages both urban density and rural development…creating the risks you point to.
I think you point to some smart ideas about hybrid systems. In some places (including Washington state) those are difficult to do, because of our peculiar constitutional restrictions on the structure of the property tax.
The hybrid system you are looking for would be comprised of value capture in the urban core and impact fees in the suburbs.
In the urban core, Jerrell and Clark’s proposal makes sense. Reducing the property tax rate on buildings will make buildings cheaper to construct, improve and maintain. Surprisingly, the higher tax on urban land values actually helps keep land prices more affordable as well. (The tax reduces the profits from land speculation, thereby reducing the speculative demand for land.) When the lower tax on buildings is combined with the higher tax on land, there is an economic incentive to develop high-value parcels (which tend to be infill sites near urban infrastructure amenities like transit). And, because the demand for developed space is finite at any given time, increasing development in downtown reduces some demand for development in outlying areas.
The complement to “value capture” is an impact fee. Suburban land is relatively cheap, in part, because it lacks access to some of the best infrastructure (which is most intense and most accessible in a downtown). Developers often take advantage of cheap land for their development projects hoping that taxpayers will subsidize the new development with new or extended infrastructure (streets, intersections, schools, etc.). Many jurisdictions impose a development impact fee to ensure that developers (and the ultimate users of new development) pay for the additional infrastructure that they need.
Value capture in urban areas helps ensure that publicly-provided infrastructure is not wasted. Impact fees in suburban and exurban areas help ensure that developers don’t shift the costs of new developments onto other taxpayers. Together, these reforms will create a more level playing field that will direct most (but not all) development to high-value, central locations.
For more information, see http://www.justeconomicsllc.com
From the little I’ve asked, it looks like most local govs can approximate a LVT by simply directing their assessor’s office to weight land more and structures less. Can be done by fiat, essentially, and also by degree. A change with such wide consequences is of course political, but useful to consider that the barriers might not be so high. I have this right?
That makes the most sense to me, and it could easily be phased in. Every year add another 2% to the land, but take away 2% for the property. In twenty years you would have a nice mix.
I love the idea of phasing in the LVT!! An overnight shift would probably create all sorts of confusion and economic stresses (as well as some big windfalls for a few lucky property owners).
Another option is simply to encourage assessors to correctly value land: often, land value assessments are wildly inaccurate. Simply truing those up with actual land values is one way to start the transition to an LVT without any outward changes to the tax structure.
I’m already seeing this on my residential property. Currently my land is valued at $365,000 and the “improvements” (i.e. my house) is assessed at $1000.
In this case, that’s because I have a single-family house in a multifamily zone, but that’s just the point, right?
That’s interesting and surprising, Chris! I’ve looked at some downtown properties, and found similar oddities — e.g., 8 story parking garages valued at just 1 million dollars. That may seem like a lot, but it would cost a lot more than $1 million to build a new one. I wonder if the assumption is that the structure isn’t worth much to most potential buyers, since they’ll probably tear them down anyway…
Dublin City Council (Ireland)has proposed a levy on vacant lands and the Government looks likely to intoduce legislation to allow for such a levy. Our detailed submission is available on this link;
Thanks for the info – that’s a very interesting approach!
I land value tax is a great idea in urban areas, for the reasons mentioned in the article. Another benefit is to current non-land owners (eg residential renters, small businesses that lease their properties): higher taxes on urban land would lead to lower land prices, making it easier to buy and develop land.
However, replacing property tax with land value tax could cause problems in rural areas. Farmland has become more valuable with increased food and energy prices, but is still much cheaper per acre than a new suburb. Land value taxes would encourage conversion of agricultural and rural land to new development; i.e. sprawl.
In already developed areas, changing property tax to land value tax will lead to a rise in value for existing buildings, while the price of the land they are built on will fall. This should encourage more development in existing urban areas, but only if zoning, politics and financing makes it possible. If zoning limits development, then changing from property tax to land value tax will not encourage development
To me, this suggests the solution is to tax land value in urban areas, while taxing property value in rural areas. This will not hurt current farmers and rural land owners. In suburban areas where zoning prevents denser development, there could be a mix of property and land value tax. In areas, like downtown and urban centers, where high-density development is allowed, the land value tax would be the main or exclusive tax on property.
The other solution would be to institute the land value tax state wide, along with strong legal prohibition against developing rural lands. There would need to be a strict urban growth boundary, with no planned expansions, to protect rural lands from development pressure caused by higher land value tax and lower property taxes. Current farmers would also be hurt by the increase in tax on their land and the drop of value of agricultural land caused by a land value tax. Phasing in the tax would help but would not eliminate the loss. Perhaps the excess value of the tax collected in rural areas (compared to the existing property tax) could be used to provide business grants, loan forgiveness, and other economic assistance for farms and other rural land uses.
In urban areas, the current land speculators (owners of parking lots and run-down or low density buildings) would be the biggest losers. Owners of large residential lots in desirable neighborhoods would also see higher tax bills (and a lower value for their property overall). Most of the effect would be on high and very high income households in the city of Seattle, but it would also impact medium-income families and retired people in the suburbs.
On the positive side, current owners of single family homes could see a much bigger return from developing their land to a higher use, but if zoning prohibits this, there would only be a downside for them.
Due to these considerations, I would suggest that there should be a state-wide land value tax that is no higher than the existing property tax, including all agricultural, forestry and rural land. Then, there should be a higher level property tax within each city and in urbanized unincorporated areas, based on zoning or urban growth boundaries. And then there should be an additional, higher tax level for land within walking distance of rapid transit stops and in the urban core. There would also be a property tax but at 1/2 the current level, to provide enough funding for services in rural counties and towns.
This would still discourage land speculation and encourage development downtown and in areas zoned for higher-density, while protecting rural areas from unintended consequences, and it would not a have a large impact on owners of single family homes, except in areas where they are able build higher.
Oregon could easily institute this, using the existing urban growth boundaries to decide where to apply the tax.
Subsidies for agricultural use would go a long way to help farmers under LVT, and are hardly unprecedented in this country.
“Subsidies for agricultural use would go a long way to help farmers under LVT…” … “Farmland has become more valuable with increased food and energy prices, but is still much cheaper per acre than a new suburb.”
If farmland is so cheap compared to urban or suburban land, then their LVT is also cheap. Why would farmers need any more help after you untax their fixed property, business property and incomes?
“higher taxes on urban land would lead to lower land prices, making it easier to buy and develop land.”
Actually, higher taxes on any land leads to lower land prices, not just urban land. So it would be easier for farmers to buy ag land because an LVT on ag land would lower the acquisition price, and it would cost them less to farm if their other taxes were eliminated.
“Farmland has become more valuable with increased food and energy prices, but is still much cheaper per acre than a new suburb. Land value taxes would encourage conversion of agricultural and rural land to new development; i.e. sprawl.”
I do not get the reasoning behind this. If the reasoning is that rural land is cheaper than suburban land and therefore it is a fait accompli that rural land will be favored for development over the suburbs, then why does city development even exist, with their high land values (or suburbs… why not rural areas first?)? It is because the high land value indicates a willingness to build there based on the benefits of proximity to commerce. If land costs determined where development was going to take place, then the Sahara Desert should be teeming with new developments.
The reason that rural and ag land is converted to new development faster than normal is that city land is being held out of intensive use by urban landlords seeking an unearned ROI. Since people need a place to live, they are forced to the periphery since there is no more land to occupy. And it’s not like when people are confronted with a shortage of Portland or Seattle city land that they buy up Lane County or eastern WA farmland. They find the closest possible land to these cities that is undeveloped . Apply a statewide LVT and development pressures will be taken off of rural areas naturally without the need of an urban growth boundary since infill will cause developments to recede into city centers like receding flood waters. The need for the UGB is the result of the failure to tax land, not for some market preference for sprawl.
“Current farmers would also be hurt by the increase in tax on their land and the drop of value of agricultural land caused by a land value tax”
If Washington’s existing current use tax system or its variant (the Open Space Public Benefit Rating System) is kept, then this is a non-issue. However, as things currently stand, because of the serious lack of real prohibitions on developing relatively cheap farm and (even more so) forest land, the current use tax system acts as a subsidy for large lot (i.e. hobby farms, forest estates) rural development.
Whatever we can do in concert to win this public recovery of socially-generated land values (and natural resources and EM spectrum and ecosystem services), let’s do it. Maybe we could make it more doable with a dividend, as BC passed its carbon tax with a dividend. Y’know, Singapore does such a good job it runs a surplus it distributes to its citizens. Money in the pocket — that should win it!
It is not just a downtown issue. In Roosevelt, one slumlord Hugh Sisley has single-handedly ruined a good chunk of the neighborhood for years to decades. It is clear that leaving properties vacant and/or with boarded-up buildings is profitable for him. The saddest part is that we will make him a very rich man after we build light rail to within one block of his swath of despair. Here is a good summary: http://www.roosiehood.com/roosevelt-development-land-use/.
It is clear the negative impact vacant lots and buildings have on our community and on the sustainable, dense communities we want to create. I don’t know if this tax proposal is the right way to go or not, but Hugh Sisley and your images downtown has proven that our current system is stacked in his favor. Let try out your proposal!
Amazing! Slumming in Roosevelt-Ravenna has not abated. I looked into this same situation 15 years ago, and prepared a technical brief on how LVT would reverse the incentives that accompany the current property tax system. Check it out on the Common Ground – OR/WA website. If you can’t find it, send me a message and I’ll attach the file on an e-mail.
I have concerns about taxing land at its “highest and best use” in that it encourages the complete destruction of anything that is not a mega skyscraper, thereby destroying the architectural and generational aesthetic of a place, rendering “here” the same as “there”, homogenizing what should be celebrated for its uniqueness. Would you tear down the 5th Ave Theater, raze Pioneer Square, bulldoze the Pike Place Market, sink the few remaining waterfront piers that tie us to our waterfront heritage? I am all in favor of in-building, but believe that we must think deeply about preserving this place called “Here” before we can’t tell it apart from a place called “There”. One way to do this is to offer tax credits for those souls brave enough to believe in the spirit of a building as grounding for a community, who celebrate the diversity of neighborhoods, of history, design and energy as vital to a vibrant cityscape. The Eitel building is a landmark piece of Seattle’s history and one of only a few buildings remaining in the neighborhood that have witnessed the birth and growth of Seattle. I see your future city and it looks a lot like Houston and Bellevue to me.
Thank you for your comments Brad!
In particular, I was struck by your remark about the razing of Pioneer Square. Whilst conducting research for a future post about parking structures, I walked past the Sinking Ship parking garage, located in the heart of Pioneer Square. Before it was built, various hotels were on that spot from 1861 to 1962. As part of a short-lived 1960s urban renewal plan, the Sinking Ship was built on that valuable spot. The hotels there were certainly landmarks, but they were brought down. Today the Sinking Ship is semi-iconic and surrounded by quasi-abandoned buildings.
What is true is that, as needs change, cities have to change also.
You nailed it, Brad! I’m from Houston and work in Bellevue now and have always thought that downtown Bellevue reminded me of downtown Houston, but couldn’t put a finger on why exactly, until your comment. They’re both kind of place-less.
At the same time, the little neighborhoods surrounding downtown Houston have very unique character. I live in Kirkland now and used to live near “midtown” in Houston. Downtown Kirkland reminds me of Houston’s midtown – trying to figure out progress without losing its past.
Thanks for your comment. I agree with you about Houston, I work there fairly regularly at the GRB Convention Center and/or the Toyota Center. On my last trip, we “discovered” a little enclave right outside of the downtown core with residential, shops, an arts center and restaurants (including one in an old laundry building that was amazing)that had a unique flavor and real sense of identity. I just don’t want to lose what makes Seattle special.
We have empty buildings and commercial space here in Stanwood. The owners raised the rents beyond what the market would bear and their tenants moved out. They have been empty for years. The owner are out of State. I wonder if the LVT would incentivise them to make their structures available at market prices. They are charging over $40k/month for one story buildings. Our last two successful businesses built their own structures.
I don’t think an assessor can juswt decide to value land differently; it’s determined by law. Further, as I understand it, at least in King County, the assessor determines a value for land + improvements as a package, then determines a value for land only. Improvements are then assigned a value by subtraction. I think they have a floor; I’ve seen 1,000 on many SFR’s, though theoretically a useless building could have a negative value equal to the demo cost.
I don’t see a wholesale change as politically viable, but perhaps a hybrid of some sort. Convert a portion of the current tax to a LVT and let the remainder stay as it is. Maybe it could be limited to urban districts as well.
Another thought: The vacant buildings bother me more that the parking lots. The lots have a function and they let in more light than dead buildings, which emit urban blight. Could we somehow apply a LVT just to buildings that haven’t been x% occupied for y years?
Interesting proposal, the Portland idea might have legs but doubt it. Let the free market work its magic. Thats how we have all of these other buildings downtown. No one forced them to build and take on an exorbitant amount of risk (people seem to forget the amount of risk that goes into these projects). I am sure all these owners want to develop their land, but its a very complicated process. TO add to that and some of the sites you highlight: I work up near 2nd & Pine and the crime, filth, drugs, gang members, violence on the streets…its unbelievable. The City needs to do some work here too and not just tax a property so that the owner is shotgunned into redevelopment or sale. There is a TON of risk that does into a downtown project on many various levels, I cannot imagine the state of downtown in these areas helps further the progress/change you seek.
Great article and many good comments. Regarding concern about over-development in rural areas, keep a few things in mind:
1. Rural land is cheaper. Therefore, it will bear a lower tax. Thus, it can produce less income than urban land and still be able to pay its taxes.
2. Some city folks think that all rural property is land value. There are a lot of hidden, man-made improvements that make rural properties valuable. These improvements include fences, irrigation and drainage systems, terracing, etc. along with more obvious improvements like barns, silos, houses, etc. These should be assessed as “improvement value” and thus not be subject to a land-value tax.
3. Development impact fees can help discourage premature development of rural areas and re-direct that development to more appropriate urban sites. Rural land is cheap because of the lack of infrastructure. Some developers will buy and develop cheap suburban or rural land assuming that other taxpayers will fund the additional schools, hospitals and road improvements that will be required. Impact fees shift these costs back onto the developer (and the ultimate users of the development), thereby mitigating the lure of cheap land and creating a more level playing field that would direct more development to urban land where necessary infrastructure already exists.
4. Zoning and other land use controls such as transferable development rights can also be used to protect rural areas and incentivize urban infill development.
For more information, see http://www.justeconomicsllc.com
Yes, Rick, great comments and ideas to address the constitutional limits on shifting taxes off improvements.
As for the article’s reference to the drivers of land value, while location is key the underlying factor is publicly-created amenities and actions.
Take zoning: when an area is up-zoned or when the urban growth boundary is widened, land values can rise over 10 times. Whether public investments in roads, parks, lights, schools, sewers or bioswales, the public is responsible for some 90 of land values. In fact, if you add a story to your house or business, that doesn’t create land value (just ask an assessor).
So the public has a stake in recovering the wealth it creates. Likewise for owners in improvements. What we’re missing, besides the costs of encouraging speculation and sprawl, are the potential economic benefits from removing the disincentive to redevelop (yes, with historic building protections). Take Harrisburg, PA. It added over $600 million in new development over some 15 years as it phased in its LVT. This was largely infill. Cities wouldn’t need to compete to attract big companies, since they would offer an Enterprise Zone-like reduction in improvement taxes; eventually this has a self-perpetuating effect on the tax base, allowing it to grow organically. This enables jurisdictions to adequately fund services as they capture more of the land values they create instead of giving most of it away to unearned owners.
Thank you; let’s connect! Yes, a heavy lift legislatively, but doable. Considering 8% LVT for Oregon to fund current property taxes and give a $2000/person (including children) annual dividend a la Alaska.
J. Vincent Winfield
The Seattle landmark process is partly to blame for this. The Eitel Building owner would love to be able to tear that derelict building down. He can’t though because the landmark board designated it “historic.” The building has major structural damage and no one can make the numbers pencil. So the owner either has to take it in the shorts and sell the building for much less than the underlying land is really worth, or he can just keep it cobbled together and get some income. So 2nd Ave gets a blighted building but the landmarks people can pat themselves on the back while having zero skin in the game.
If this is true, it’s a bit of a hole and oversight in post’s rationale. Nevertheless, I’m a big fan of Georgian policy, carbon pricing, state income tax, and a range of smart ideas with no political path at this time.
Thanks for this Morgan. Presently, for a possibly future blog post, we are looking at the historic designation process and the number of historic properties in Seattle. Arguably, it is an obstacle for development, as shown by the Eitel building on 2nd and Pike.
Do you mind if I quote a couple of your articles as long as I provide credit and sources back to your website? My blog is in the very same area of interest as yours and my visitors would really benefit from some of the information you present here. Please let me know if this okay with you. Appreciate it!
Pleased to see your article.Ive attached a link to a YouTube video for a story on LVT that is in part on youtube and part on twitter & facebook. I would dearly appreciate your comments.
Thanks Nigel Darko.
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