|Wealth and Want
|... because democracy alone is not enough to produce widely shared prosperity.
How Profit Shapes Urban Space
by Jeffery J. SmithIt was the lure of cold cash that drove urbanites out of downtown. The usual suspect, the car, was merely a convenient ride. Despite our present dependency on cars, the drive to profit is powerful enough to bring people back.
President, The Geonomy Society
Local governments have begun to modify the profit motive. Rather than meekly pick up the ever-rising tab for expanding the infrastructure, some localities now charge developers a portion of this cost. While this move may stymie development at the edge, what’s needed is something to draw development into the urban core.
Without spending a penny of subsidy, cities can make urban renewal more profitable than suburban development. How is about as commonsensical as Einsteinian physics, but like "e=mc2", it works. The trick is to forget subsidies and lower one tax while raising another. That is, levy a tax or charge a fee to collect land value while eliminating any tax on buildings or improvements.
The present property tax works backwards, like an intruder from the anti-universe. It increases as owners improve their property; it decreases when owners let buildings dilapidate. "Save money, create slums," cities tell owners.
Some owners do keep prime sites covered with parking lots or abandoned buildings while waiting for land values to rise. "Good numbers are hard to come by," notes Bill Batt, former fiscal policy researcher for the New York legislature, "but easily a quarter of a US city is under-utilized." Thus urban cores decay, an entropy that seems natural and inevitable yet is policy-induced.
If the property tax is a centrifugal force that flings structures outward, its opposite is a land levy, a centripetal force that pulls development inward. To pay this charge, owners try to put their parcels to better use. "Owners of the most valuable sites, paying the most, try hardest," explains Tom Gihring, a Seattle-based consultant.. "Since the most valuable lots lie about the center, it is the center which draws development." In-fill happens.
The world looks different to owners dozing at the wheel, waiting for land values to rise. Title-holders keeping prime downtown sites vastly underutilized "now pay only, say, $25,000 per year in property tax for a half block," figures Dr. Mason Gaffney of the University of California at Riverside. "Post-PTS (property tax shift), these owners of parking lots and abandoned warehouses might have to part with three times that amount each year." At $75,000 per annum, no longer could they afford to let prime sites lie relatively idle. "They'll put their land to uses that generate much more revenue than does an empty building or car-covered lot," adds Gaffney. "They'll get busy building apartments, stores, offices, schools, theaters, mixing all uses together to maximize their return."
Post-PTS, would these speculators turned developers find customers? Or would potential customers continue to set up shop and home out in the cheaper 'burbs? Many house-hunters are drawn to where all the amenities are in walking distance. Many shopkeepers locate where people walk about. Other businesses collect themselves close to their suppliers and customers. There are plenty of takers for new downtown development.
At least that's what land values tell us. Land values merely reflect the desirability of locations. The more people want on, the more they must pay. The lots that people are willing to pay the most for are the heart of the city.
A computer model of Boston modestly shifted tax liability landward; the city contracted by a half mile (Joe DiMasi in The National Tax Journal, 1987 Dec.). Johannesburg, SA, while taxing land alone recycled sites so rapidly that little development was leftover to sprawl onto suburbs. The Northwest Environmental Watch calls this levy "the sprawl tax."
As does nature, her defenders might also want to abhor a vacuum. "Letting one city block lie fallow means paving over many suburban acres," calculates Gaffney, consultant to Alaska on oil royalties. "Conversely, using one block intensely means many outlying acres need not be used at all." The biggest gain in saving suburban land comes from using urban land more efficiently. Hence the Sierra Club, Friends of the Earth, writer James Kunstler, and a host of others recommended the PTS, putting this cutting-edge reform on the radar screen of mainstream policy makers. In December, Minnesota’s Environmental Quality Board added their voice to the growing chorus.
This property tax shift (PTS) "helps cities recover from auto-dependency," notes Gihring, author of The Journal of the American Planning Association’s first article on revenue reform (1999 Winter). The PTS turns lots for cars into structures for people. By densifying a city, it provides more riders for mass transit, justifying more routes and times. As riding becomes convenient while remaining a bargain, and parking grows inconvenient while rising in cost, more people switch from driving to riding. Less traffic lets cities transform streets for bikes, pedestrians, sidewalk cafes, and street performers.
Architecture, too, could blossom. As car use wanes, so might those keep-out-snout houses. Frank Lloyd Wright, who’d design around a tree rather than ax it, advocated de-taxing structures while re-taxing sites. This idea peaked about a century ago with the popularity of American reformer Henry George. Today, some Australian towns still do tax land alone; they have 50% more built value per acre than those that don’t (Kenneth Lusht, Pennsylvania State University).
Might the PTS work too well? Might it spur edge-to-edge development, leaving no lot unbuilt? "While each owner may want to build, the community may prefer open space and would buy the owner out," says Batt, a retired professor. Pittsburgh, PA, taxes land six times more than buildings. The city converted its most valuable location, the Golden Triangle where the three rivers meet, into a park without developer resistance or an agonizing grassroots effort. Pittsburgh also renewed itself without federal subsidy and enjoys the lowest housing costs and crime rate of any major US city.
In New York, the city council keeps Manhattan’s Central Park unbuilt not because Greens rule the Big Apple but because property values overall are higher with the park than with luxury condos on the site. Land value is at its maximum when land use is at its optimum - mixed use including non-use. Batt adds, "the higher land value is, the more revenue there is for public benefit. Limiting a locality’s funding sources to land value puts government squarely on the side of the land’s health."
Despite the benefits of the PTS, it is rarely adopted. Giving up one's land value to government is not an easy sell. Nevertheless, during the '90s the PTS did win a few victories. In Allentown, Pennsylvania (where 15 other nearby towns, including Pittsburgh, have already shifted their property tax landward), voters passed this shift into law overwhelmingly despite an expensive media campaign waged by the real estate lobby. In Mexicali, Mexico, the mayor persuaded the landed interests to accept a total PTS (zero tax on buildings, a far higher rate on land) and invested the proceeds in improving the infrastructure. The rich got to be rich in a more comfortable setting.
To shift the property tax in Pennsylvania, it is not necessary to amend the state constitution; any town can change its tax rates any way. In many other states, overhauling the constitution may be a prerequisite. Or, it may be legal for a locality to concoct some sort of land-use fee or raise the deed fee and impose it annually, similar to the fee for registering titles to cars in many states.
The bottom-line is on the side of PTS backers. The shift makes more winners than losers. Since the PTS lightens the tax load for a majority of residents (most residents do not own prime locations), proponents of the PTS do have a huge pool of support to draw from.
The minority who would pay more, owners of valuable lots, do put themselves in opposition of the PTS. They'd have to pay much more than the typical residents get to save and tend to oppose forcefully while savers propose shyly. Yet there are ways to stoke the savers and mollify the higher-payers.
One way is education. Some owners of prime locations, those already carrying a heavy tax load for their built value, could pay less. Those paying more do get more for their money.
As land values rise, so would one’s voucher, letting even poor residents stay where they love, and love where they live. Spending the vouchers on buying or leasing land or improvements would keep employment high in construction, a mainstay for many workers. Thus urban advocates might ally with environmentalists, attaining a critical mass for shifting the property tax.
The Housing Voucher also sweetens the pot for the middle class. Currently, in order to tap their site value, they must cash in and move out, or take on a second mortgage and go into debt. Getting back a voucher much greater than the land tax or fee they pay in would constantly recycle their community's site values, making them available in real time. It'd be like cashing in while staying put.
While attracting some people, the Housing Voucher may help neutralize others. Builders and owners, accustomed to capturing land value for themselves, would profit as vouchers are spent on real estate, the source of much income for many owners.
Although society may have a feeble claim to many of the things it taxes, land value is precisely what society should not forgo. It’s not lone owners but the community who generates this value by its infrastructure and its mere presence. Leaving ground rent uncollected constitutes a "giving" that communities and eco-systems can ill afford. Let's wean owners from socially-generated site values and make urgent their hunger, and they'll hunt up their own built value where it's needed.
To use land wisely, her value needs to be disbursed fairly. Collecting land value while removing taxes upon buildings organically puts structures where they’re supposed to go. The PTS can do so as long as we ride this planet around the sun.
Jeff Smith is President of The Geonomy Society. He researches, writes about, and organizes around "geonomics" or natural rent issues. In December he was a guest of the Green Party of Taiwan where he spoke before legislators, academics, and activists.
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper