In an all-around excellent post on Philadelphia tax policy, Brett Mandel includes land value taxation in a list of policy proposals that would reduce the tax burden on lower income households in growing neighborhoods:
Using a Real Estate Tax relief program to “buffer” changes in assessed values to eliminate the most dramatic one-year changes in tax burden. Implementing Land-Value Taxation to increase tax rates on land while reducing tax rates on structures to reduce tax burdens for most homeowners, encourage development, and discourage speculation. Advocating for the Commonwealth of Pennsylvania to enact a state circuit-breaker property-tax relief program to hold down real-estate tax increases for those on fixed incomes; and to expand existing state-funded low-income property-tax relief for truly needy taxpayers. Allowing taxpayers to pay real-estate tax bills in quarterly payments to help families spread costs throughout the year — as a bonus, this measure would save the City and School District millions in avoided borrowing costs. Establishing a Taxpayers’ Advocate to educate about real-estate taxation and help residents get informed and appeal unreasonable assessments. Creating a system of real-estate tax deferments to allow homeowners to live in their homes today and pay their tax burden in the future (when they sell and realize the “gain” from increased property value).
Brett is right about this – check out the charts in this PDF to see how the tax burden would shift in each of the city’s Councilmanic districts. Most people would see a tax cut under a shift to land value taxation.
The point about speculation is really important, not just for the tax debate but also for the debate over gentrification.
When rents rise in growing neighborhoods, it’s not the buildings that are increasing in value. There are more nice new buildings going up, sure, but rents also go up in buildings that haven’t gotten any nicer. Landlords start asking for higher rents for the same apartments, without adding any more value for the tenant. This is what people tend to be concerned about with gentrifcation.
The reason for the rent inflation is that the speculative value of the land is going up. Landlords see the number of amenities in the neighborhood increasing, and they start thinking they can get away with charging higher rents. Vacant lot owners see rents increasing, and they hold off on developing them into housing until rents go even higher.
So the rent increases are all about land speculation – the expectation that land values will be higher in the future, so we can charge higher prices today without adding any extra value.
There’s a simple solution to this – taxing land speculation directly.
That is exactly what the land value tax does. LVT is a tax on waiting to build. By taxing all the land parcels in a neighborhood at similar rates, whether or not they have buildings on them, the LVT dramatically increases the cost of owning empty land in an area where land prices are rising. It pushes landowners to build sooner, to come up with an income stream to pay the tax.
As more landowners build on their lots sooner, new housing supply would come onto the market faster than under the current tax regime, and this would help keep rents in line with construction costs, reducing rent inflation.
The other thing AVI would do is reduce development pressure on neighborhoods like Point Breeze, and increase development pressure on Center City and neighborhoods where land is already expensive. Center City still has a lot of surface parking lots and short buildings whose tax bills would be much higher under the LVT. Whereas the current property tax configuration tends to push development outward, LVT would take some pressure off the periphery and increase development pressure in the core.