All US Mayors keep an eye on New York City, as it’s the most high-profile municipal policy incubator in the nation. So even though we’re a Pennsylvania blog, we’ll be checking in with the Bill DeBlasio administration from time to time to see if there are good ideas worth stealing. And I hope people will pay attention to this particular maneuver, because it’s arguably the most important piece of the Bill DeBlasio housing agenda.
Bill de Blasio is seeking to implement an idea he introduced in April: to increase the assessed value of vacant residential properties in order to “force owners either to put it to use and build housing or to sell it to those who will,” reports Joe Anuta. “By increasing the cost of inactivity to prohibitive levels, the hope is that more land can be put back into use and much-needed housing can be built.”
“It would drive the price of land down and increase development, to the extent the tax increases are significant,” predicted Robert Knakal, chairman of Massey Knakal Realty Services. “The more expensive [vacant land becomes to hold], the less of it you will get—that’s Economics 101.”
Why would a tax increase on land push rents down, not up?
Because a major cause of rent inflation is speculation – people holding land other people want off the market until the price goes higher.
That could be a private landowner like Ted Snyder in Old City, or it could be a guy like Philly Councilman Kenyatta Johnson who’s blocking dozens of city-owned parcels from coming to market in Point Breeze.
Whatever the cause, when vacant properties in appreciating neighborhoods get held off-market and out of use, rents go up.
So as Dean Baker explains, when you raise the cost of holding a vacant parcel, you push some speculators to sell their land (increasing the supply of land for sale on the market), or actively lease or develop it (increasing the supply of housing or commercial space for rent on the market) and both of those things put downward pressure on rents.
The DeBlasio plan is a sort of poor man’s land value tax, in that it only applies to vacant land, and not vacant units in existing buildings, or underbuilt parcels in expensive areas. Those types of speculators won’t feel the pressure to build or sell from the DeBlasio policy, but this is a good start, and I’m optimistic that once people understand the economics of why this is a pro-affordability policy, they’ll see why a shift from the traditional property tax to a land value tax would work even better still.