Tax land, not buildings

 

http://streetsblog.net/2012/12/10/want-to-end-the-scourge-of-surface-parking-tax-land-not-buildings/

I can't find the article now, but Pittsburgh adopted a land tax and phased it in over time.  Buildings ("improvements" to the land) are still taxed, but at a lower rate than the tax on the land itself.  I don't know of any reason why Cuyahoga County couldn't do the same.

 

According to Wikipedia, Pittsburgh scrapped the land tax for a traditional property tax in 2001, but kept it in part of the city only (downtown?)

http://en.wikipedia.org/wiki/Land_value_tax_in_the_United_States

Tax Land, Not Buildings

 

 

 

Earlier this year, the city of Minneapolis received a grant from Met Council to study possible strategies for doing away with its over-abundance of downtown surface parking. For lots of reasons, the fact that surface parking covers one-third of the entire surface area of downtown is bad news for the city.

 

- The conventional property tax, which taxes land and buildings at the same rate, is essentially backwards when it comes to the behaviors it incentivizes. It penalizes property owners for building or making improvements to their structures, while rewarding speculators and absentee landlords who would rather allow their properties to decay than make expensive (and annually taxable) improvements. Taxing land and buildings at the same rate means that as long as you don’t put any buildings on your land, your tax bill is going to remain relatively cheap.

 

- Aside from the obvious goal of raising money to pay for public services, we levy taxes either to discourage a particular behavior in favor of another. But if the city is trying to encourage development—and to attract the 70,000 more downtown residents it seeks by 2025—it hardly makes sense to place a tax on that behavior. Similarly, if the city wants potential developers to treat land as the scarce resource that it is—encouraging them to build up rather than out in order to maximize economic output and reduce sprawl—it makes sense to tax land at a higher rate than buildings.

 

- The intersection of 5th Avenue South and 3rd Street South in downtown Minneapolis provides an instructive example of how our property tax code is currently sabotaging the city’s development goals. At this intersection, we see three distinct forms of development: a surface parking lot (owned by the Star Tribune Co.), a multi-level parking garage (Gateway Ramp), and a commercial space (the Minneapolis Grain Exchange building).

 

- When you look closely at the property tax bill for each, it becomes clear that the conventional property tax deters development and risk-taking. The surface parking lot spans 2.5 acres, and its owner pays $1.57 per-square-foot of land in annual property taxes to the city. The parking garage across the street spans roughly the same area (2.48 acres), and because of the lot’s structural improvements, pays a bit more than double the surface lot in property tax —$3.70 per-square-foot of land. The Minneapolis Grain Exchange building (which occupies 1.22 acres of the adjacent block), however, pays a staggering $65.34 per-square-foot of land—a rate almost 42 times higher than the surface parking lot.

 

Full article below:

http://www.streets.mn/2012/12/10/tax-land-not-buildings/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A%20Streetsmn%20%28streets.mn%29

This is actually a very, very old idea; I don't know where the first instance of it appeared, but a version of it appeared in Adam Smith's Wealth of Nations.

This is how we wound up with a lot of empty lots in Columbus. The property owner who owned the land in the Short North at the NE corner of High and 5th where Out of the Closet is going in (former Shell station) was paying less than $500 a year in property taxes when there was nothing on the site.

This is actually a very, very old idea; I don't know where the first instance of it appeared, but a version of it appeared in Adam Smith's Wealth of Nations.

 

That will help convince those who are fundamentalist capitalists that this is what our forefathers had intended! ;)

This is actually a very, very old idea; I don't know where the first instance of it appeared, but a version of it appeared in Adam Smith's Wealth of Nations.

 

Medieval Amsterdam, for one.  That's why it is full of townhouses that can be less than 10 ft wide, but six stories tall.  Of course, they didn't tax buildings at all, only land.

Henry George was a proponent of this in the 1890s.

 

The surfeit of surface parking in Columbus, especially downtown, is a result more of zoning law than tax law. Columbus essentially adopted a suburban zoning code for the entire city, including downtown. That meant a 7-Eleven with a parking lot at Broad and High was OK by right, but a mixed-use, multi-story story building right up to the sidewalk required a variance -- and was required to provide plenty of parking, according to formula. That basically required developers to buy and demolish nearby buildings for parking.

 

Barf. When was that taken off the books?

It changed downtown a dozen or so years ago when the Downtown Commission was created to preside over, essentially, a form-based code. But it's still largely the law of the land outside of downtown and in areas other than urban commercial overlay.

 

This is actually a very, very old idea; I don't know where the first instance of it appeared, but a version of it appeared in Adam Smith's Wealth of Nations.

 

Medieval Amsterdam, for one.  That's why it is full of townhouses that can be less than 10 ft wide, but six stories tall.  Of course, they didn't tax buildings at all, only land.

 

They taxed the frontage along the canals. So you get narrow but deep buildings.

Found this video on youtube explaining land tax concept. This seems like it should be an absolute necessity in all urban business districts.

^ Land Value Tax should be the basis for all taxes.  They cause the least distortion of any tax.  The statue of Tom Johnson on Public Square is holding a copy of Progress and Poverty by Henry George.  I believe George is one of the earliest proponents of a Land Value tax. 

Fun fact: land value tax is outlawed by the Ohio constitution.

I don't understand. How do you tax all land in a way that is fair?  If someone owns a surface lot in the short north, the assessed value of the land is still based on the land values nearby which are high due to what is built on them. How do you assess land value without accounting for nearby buildings? You mean to tell me that a small business owner who is operating a modest gas station or parking lot or something else that contributes to the community should suddenly be expected to pay an exponential amount of money in taxes because of nearby land values that are a result of bull sh!t tax abatements allowed by city clowncil in trendy neighborhoods and state universities with multi-billion dollar endowments swallowing up entire neighborhoods with dense housing stock where students are required to live after their freshmen year?

 

It seems that it could go the other way as well. If land were taxed based on said lands potential, the land owner would be forced to sell the land to a buyer for pennies on the dollar, as tax rates are absolutely a factor in price negotiation. The buyer has an obligation to make big plans for the property and will lose a lot of money until that happens.What happens if investors aren't interested in the site when auditors are basing land value on its potential? The dude who currently owns that land goes bankrupt, right?

 

I think it's a great concept, in theory, but I just don't understand what sort of truly fair formula would work for land value assessment and I don't see it being a smooth transition that doesn't screw over a lot of people.

 

I'm not an expert on this stuff but it doesn't seem like it has been thought all the way through. I would like it to work and be implemented, though.

I just don't get it. How the hell do you assess land value fairly? Particularly in neighborhoods where land itself is hardly ever sold?

Fun fact: land value tax is outlawed by the Ohio constitution.

 

Change state law, change the state's government and/or change the state's borders. In developed places with more recorded history than North America, borders change every few hundred years. It's time.

I highly recommend a recent Malcom Gladwell Revisionist History podcast discussing how the public basically subsidizes private golf courses in California. The land is taxes WAY below market values.

^^I'm calling BS that the constitution of Ohio expressly states that land tax is not allowed.  Because it doesn't exclusively rule it out, i would say it is open to interpretation and therefore allowed.

  The focus of the Ohio constitution in terms of taxation was on land for agriculture and mining as well as preservation.

No one can answer my question?

^You might want to check out the youtube video that i posted to understand. This is one of the shortest threads on UO. Less than one page so far and i don't get why you are writing more in your own 3 postings than has been written in total.

No one can answer my question?

 

Wikipedia has a decent section on the practical issues of LVT: https://en.wikipedia.org/wiki/Land_value_tax#Practical_issues

 

Personally I am a fan of the residual method. In Cuyahoga County both land and buildings are assessed. Buildings depreciate, so it is easy to find records of total property value and depreciate the structures on it. This is done very meticulously for insurance purposes, as every property owner has (or should) insurance. So: property value - deprecated building value = land value. Then assess the tax rate.

 

What the wikipedia page states well is no matter how you slice it, the initial valuation is the most difficult. Afterwards you can more easily rely on market transactions to state value for tax purposes.

^ My question is would this apply statewide or only in the cities? I don't know if it would work in rural areas and there could be a lot of unintended consequences if it were applied in the suburbs and may seem to contribute to blight in the burbs.

 

Is this something that can be applied on a piecemeal basis? Practically, I would assume yes, but I think there would be legal/constitutional issues applying different standards in different parts of the same county.

^^ If I am following you correctly, the residual method would (in theory) encourage more development in the urban core because the developed land would have a lower tax basis than vacant land due to the depreciation.

^ My question is would this apply statewide or only in the cities? I don't know if it would work in rural areas and there could be a lot of unintended consequences if it were applied in the suburbs and may seem to contribute to blight in the burbs.

 

Is this something that can be applied on a piecemeal basis? Practically, I would assume yes, but I think there would be legal/constitutional issues applying different standards in different parts of the same county.

 

I think Pennsylvania used to have (or still does) a LVT only in cites over a certain population.

^^ If I am following you correctly, the residual method would (in theory) encourage more development in the urban core because the developed land would have a lower tax basis than vacant land due to the depreciation.

 

Not exactly, what I am saying is that while this may encourage development in the cities, it may lead to a perverse effect in the burbs and rural areas as it would 1) encourage development of land which should remain undeveloped (farmland or grassy undeveloped fields) and 2) encourage the wrong kind of development in the suburban areas, because people will just scramble to put up something because, it is tax advantaged to have a bad strip mall that will fall apart in 10 years than an empty lot.

^ My question is would this apply statewide or only in the cities? I don't know if it would work in rural areas and there could be a lot of unintended consequences if it were applied in the suburbs and may seem to contribute to blight in the burbs.

 

Is this something that can be applied on a piecemeal basis? Practically, I would assume yes, but I think there would be legal/constitutional issues applying different standards in different parts of the same county.

 

I think Pennsylvania used to have (or still does) a LVT only in cites over a certain population.

 

But the laws in PA are probably set up differently than in Ohio, and it could be much more difficult to amend the laws in Ohio to accomplish this. I don't know, I am just speculating.

 

I know that they are working on property tax reform in Columbus now and trying to cap the increases that property owners get when the county does a re-evaluation.

^^ That response was to the comment before yours. Sorry for the confusion.

^ My question is would this apply statewide or only in the cities? I don't know if it would work in rural areas and there could be a lot of unintended consequences if it were applied in the suburbs and may seem to contribute to blight in the burbs.

 

Is this something that can be applied on a piecemeal basis? Practically, I would assume yes, but I think there would be legal/constitutional issues applying different standards in different parts of the same county.

 

I think Pennsylvania used to have (or still does) a LVT only in cites over a certain population.

 

But the laws in PA are probably set up differently than in Ohio, and it could be much more difficult to amend the laws in Ohio to accomplish this. I don't know, I am just speculating.

 

I know that they are working on property tax reform in Columbus now and trying to cap the increases that property owners get when the county does a re-evaluation.

 

I used to be a little more versed in this subject but I haven't kept up with it in a while. 

^ My question is would this apply statewide or only in the cities? I don't know if it would work in rural areas and there could be a lot of unintended consequences if it were applied in the suburbs and may seem to contribute to blight in the burbs.

 

Is this something that can be applied on a piecemeal basis? Practically, I would assume yes, but I think there would be legal/constitutional issues applying different standards in different parts of the same county.

 

I think Pennsylvania used to have (or still does) a LVT only in cites over a certain population.

 

But the laws in PA are probably set up differently than in Ohio, and it could be much more difficult to amend the laws in Ohio to accomplish this. I don't know, I am just speculating.

 

I know that they are working on property tax reform in Columbus now and trying to cap the increases that property owners get when the county does a re-evaluation.

 

These reforms can become problematic if they completely freeze property tax increases.  This is a huge problem in California.

^^ If I am following you correctly, the residual method would (in theory) encourage more development in the urban core because the developed land would have a lower tax basis than vacant land due to the depreciation.

 

Not really, the residual method I mentioned is meant to establish the baseline value for a land value tax system. The system itself inherently promotes development, because in a pure implementation land improvements do not increase tax burden. Practical implementations have taxed both land and improvements, but use separate and lower rates for those improvements. In other words, if the surface lot you own has a tax bill of $10,000 and the apartment building next door has a tax bill of $40,000, under LVT the ideal arrangement may be both are $25,000. That way:

 

1. the government doesn't lose tax revenue.

2. the developed property essentially gets a tax break of $15,000

3. the surface lot pays $15,000 more, spurring the owner to develop it for a more profitable use or selling it

 

The reason why you don't see LVT everywhere in the US is for two reasons: 1. bureaucratic inertia and 2. its unclear how you "reset" people's property tax. Everyone will want it lower. Plus, in Ohio at least, what will the schools say? It would be a political nightmare.

^ My question is would this apply statewide or only in the cities? I don't know if it would work in rural areas and there could be a lot of unintended consequences if it were applied in the suburbs and may seem to contribute to blight in the burbs.

 

Is this something that can be applied on a piecemeal basis? Practically, I would assume yes, but I think there would be legal/constitutional issues applying different standards in different parts of the same county.

 

I think Pennsylvania used to have (or still does) a LVT only in cites over a certain population.

 

But the laws in PA are probably set up differently than in Ohio, and it could be much more difficult to amend the laws in Ohio to accomplish this. I don't know, I am just speculating.

 

I know that they are working on property tax reform in Columbus now and trying to cap the increases that property owners get when the county does a re-evaluation.

 

These reforms can become problematic if they completely freeze property tax increases.  This is a huge problem in California.

 

I think it will not completely freeze increases, only limit how much it can rise in any 3 year period and upon a transfer.

A Mercifully Brief Chapter on a Frightening, Tedious, But Important Subject

by James Howard Kunstler

 

"Our system of property taxes may be the single most insidious, pathogenic factor contributing to the geography of nowhere. It is almost impossible to discuss..."

 

http://www.earthrights.net/docs/kunstler.html

Ah, sprawl-busting-era Kunstler. It's a shame that he moved away from that material but what else fresh is there to say? There's nothing new with sprawl, really, and its power has been significantly reduced by, of all things, banks. While banks don't always support mixed use due to the presence of difficult to lease (in the long term) expensive new retail spaces, they have opened the floodgates to urban residential development while showing restraint when it comes to speculative sprawl loans for unleased retail spaces and single-familys.

 

To me as a retailer, I am NOT into spaces that still have gravel floors and have no proven track record and they have probably seen that kind of resistance from others as well. And as a homeowner I don't fully trust something that just went up after seeing so many mid-2000s houses turn to crap already.

I fear Chuck Marohn is going the same direction as Jim Kunstler, but I don't know where exactly he and Strong Towns is going to end up. The rhetoric has gotten kind of tired and echo-chamberey, much like Kunstler's long-emergency tirades.  It doesn't hold the same appeal as when they were first discovering their respective interests, and you could explore those things with them and kind of learn about it together.  Now they come across as self-righteous obstinate pundits.  The main difference is that Kunstler was always grumpy, and Chuck is anything but. 

^You might want to check out the youtube video that i posted to understand. This is one of the shortest threads on UO. Less than one page so far and i don't get why you are writing more in your own 3 postings than has been written in total.

You're being unnecessarily ridiculous, Dave. My comments didn't entail nearly a third of what was said and even still, my comments were merely an attempt to understand the argument. I'm a PROUD urbanist who rides public transit everywhere in Cleveland and despises sprawl. I promise you that I'm not the enemy. I just thought that the argument wasn't clearly stated and was asking for it to be elaborated. The motherboard on my laptop is fried and it's been really hard to navigate this site only on my phone, since, but I'll try to check out your YouTube video. . I don't want there to be any bad blood between us.I enjoy your posts.