Property taxes are seemingly ingrained into the prototypical American city. Schools, municipal governments, and many other public services are dependent on property taxes for their survival. Yet, property taxes also seem to further enforce the effects of income inequality and many Americans are fed up with the property tax system. That has many people thinking, is there a valid substitute for property taxes? Can we dramatically overhaul this tax system in order to benefit the majority of Americans, especially those who are low-income?
Actually, there is a valid solution to this issue. This solution is the Land Value Tax. To put it shortly, land value taxes tax property owners for the value of their land (regardless of the value of the buildings they choose to put on this land) whereas property taxes tax owners a percentage of whatever value their property is assessed (Bourassa 101).
In this way, property taxes actually discourage landowners from making improvements to their properties, since these improvements will result in them having to pay higher property taxes because of their increase in property value. This idea is fundamentally damaging to cities that are in desperate need of high-density, affordable housing as it discourages landlords from building as many apartment units as possible, because this would increase their property value.
Meanwhile, if this landlord's municipal government collected land value taxes instead, he/she/they would be incentivized to develop their property in the most efficient way possible. Because they will pay the same amount of taxes regardless of how improved the property is above the land (since the LVT is based on the land's value, not the property's), they will be encouraged to improve their property in a way that makes it the most valuable. This, in turn, would likely cause more landlords to develop higher-density housing, which could be the gateway to helping many planners and cities solve many of the core urban issues that face us today.
Land value taxes have already been implemented in cities around the world. One of the cities that is most notorious for its implementation of LVT is Pittsburgh. According to Steven Bourassa, an Urban Planning professor at Florida Atlantic University, after analyzing the effect that LVTs have had in the city, "land value taxation seems to be a desirable strategy for central cities to employ in seeking to encourage development and attract households" (Bourassa 109). Although he found that the LVT is less effective in suburban and rural areas in the Pittsburgh metropolitan area, Bourassa was able to conclude that urban central areas were able to capitalize off of the LVT in a way that benefits the majority of its residents. Because many of the issues that face central cities today stem from a lack of affordable housing supply in the area, Bourassa's findings could point toward a solution that cities can use to expand housing and to combat many other issues that stem from this lack of housing.
Bourassa, Steven C. “Land Value Taxation and Housing Development: Effects of the Property Tax Reform in Three Types of Cities.” The American Journal of Economics and Sociology, vol. 49, no. 1, 1990, pp. 101–111.
Logan Cimino is a second-year Geography and Economics student at the University of California-Santa Barbara. His main research interests in urban planning lie in transportation policy, housing policy, and residential inequality. He aspires to plan cities in a more efficient, sustainable, and equitable way.
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