Emptiness tax (follow-up)

In late December I mentioned a proposal by Bill Hudnut of the Urban Land Institute for a two-tiered property-tax structure that taxed vacant land at a higher effective rate than developed land, reasoning that the higher tax would spur development.

This Market Urbanism post says that a Hudnut-like scheme would be beneficial in the short run, not so much in the long run:

Speculators essentially hold the land until development is optimal for the site, and all sites cannot optimally [be] built at once. Discouraging speculation drives the land into the hands of developers at cheaper prices than current market prices.

At the same time, all the new developers will compete … for users of the space they build on the vacant land in reaction to the new tax regime. This either means they’ll build smaller in anticipation of the glut of new development, or vacancy rates will be much higher.

De rigueur Jane Jacobs reference:

[The proposal] will harm the diversity of building age that Jane Jacobs claims as a key ingredient that makes for great cities. The stock of buildings will be disproportionately represented by buildings built shortly after the tax scheme is enacted. As new development occurs, affluent people will be attracted to the developing areas. As these buildings depreciate, the more affluent will relocate. Without enough diversity, over a long period of time a neighborhood will be predominantly lower-class residents.

And an alternative scheme is proposed:

I do favor some regional, state, or other tax based upon acreage. (if offsetting income tax or other productivity-stifling taxes) However, I would implement the tax to discourage sprawl, not to discourage speculation. Thus, I would tax each acre equally, whether developed or vacant.

The one thing both proposals have in common is separating the tax on the actual land from the tax on whatever structures may have been built on it, which seems a rational approach: you can always replace a building, but they’re not making any more land. (Well, there’s always the Dutch, but they have other motivations these days.)







3 comments

  1. Foggy »

    26 January 2009 · 3:33 am

    Surely all this land reclamation is adding to the problem of rising sea levels? A possible solution would be an intensive whaling program – those whales must displace a lot of water…

  2. CGHill »

    26 January 2009 · 6:53 am

    Well, the Dutch have a pretty good record for holding back the sea, at least so far.

  3. Blair »

    27 January 2009 · 6:53 pm

    Mr. Hill –

    First, thanks for bringing this up and now making it a part of a broader dialogue. I must say that the quote from ‘Market Urbanism” above is completely missing the point:

    “This either means they’ll build smaller in anticipation of the glut of new development, or vacancy rates will be much higher. ”

    In truth, the Market Urbanism quote actually confirms Hudnuts point – he says, “…they will build…” Who cares if they are building smaller buildings than they might otherwise at some point decades down the road. The problem in downtown Oklahoma City – any many other cities like it – is not that we don’t have enough big buildings, and certainly not that we have too many small buildings, the problem is that we don’t have enough buildings of any size…BUT we have plenty of vacant land and too many surface parking lots – both problems that Hudnut’s proposal would certainly address.

    As for the immediate changes in the market, a similar scenario would be true anytime regulations are changed. If we have an opportunity to improve the tax code so that it makes the real estate market more efficient and improves our cities, we should not allow a fear of initial market correction deter us from doing so. Further, this can be addressed by staging in the tax code change to create a more gradual shift in the market. We don’t have to remain prisoners to the policies and tax-codes of yesterday.

    The best real estate economist in the world know this works, Henry George knew this worked, but wealthy property speculators are – and have always been – more difficult to convince!

    For more info on Land Value Taxation (LVT), check out: http://www.urbantools.org/

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