What is land value tax? How does it work? It requires some changes in how we think about land: no individuals or entity besides the state (county/municipality) can own land — that land is owned or held in common. You buy the right to use it, no more.
What you really get when you buy land is a title, the exclusive right to use a parcel of land defined by a set of map coordinates. But the land itself belongs to everyone, like a natural resource. If you think you own land, try to move it. Or look up Eminent Domain.
Think of the nations that use Sovereign Wealth Funds that use resource extraction taxes to repay their citizens when those resources are sold. Oil and coal are not renewable: some nations realized this and recoup money from their sale in the national interest.
Those resources — renewable, like timber, or not, like coal — belong to the people and should only be sold on their behalf. Land is a similar resource: not renewable but not consumable either. So it can only be rented, not sold.
The only reason to own land, as we do now, is to remove it from the commons and extract rents, as in feudal times or The Enclosures Acts in the UK. This creates artificial scarcity on behalf of rentiers at the expense of everyone else — working people and productive business.
In a land value tax system, you buy the title to a parcel and then pay an annual rent to use it, in lieu of property taxes. Only the land would be assessed a rent, not the improvements, like buildings. You can do what you like, within the zoning regs.
So instead of underutilized parcels that are being held as part of an investment strategy, often at property tax rates as low as 1% of their appraised value, a land rent would be a multiple of that, enough to discourage vacant or underdeveloped lots in high value locations.
Surface parking lots, storage warehouses, big box stores — all of these are just real estate plays, part of a portfolio, rather than investments in the local economy. There aren't many jobs or much local revenue associated with them.
The value of a piece of land is its location. A parcel located on a highway or busy comm'l hwy is valuable because of its location.
Its increased value, relative to a parcel out in the country, is a result of nearby development and investment by the state — roads, residential development (customers/employees), utilities. Those investments are paid for by the local government — the people who live there.
It's in the interest of the local authority to make the land work, to charge a high enough rent to drive development and discourage hoarding and put the land into productive use.
For example, a vacant parcel near me is, that way for years, is valued at USD700k but is only levied about USD7k in property taxes — 1%. What if the land rent was 10% — USD70K? Would it still be vacant?
Or would the owner be motivated to develop the land to help cover his land rents or sell to get out from under that obligation? Someone wants that land but not at that price. So how to fix that?
This should push the price to use that parcel down, as there is now a penalty to hold onto it as undeveloped land. A $700k parcel with 1% tax might be offered at half that if the land rental was 10% or $70k.
And it is just one of several parcels that are either vacant or have disused buildings on them. How does a local government get those parcels back into use, earning money for the city through commerce or as housing? By making them too expensive to keep vacant.
The benefits to this would be increased development, as investors/developers felt some pressure to extract *their* rents from the land, by building on it. Since the improvements aren't taxed, they are free to build whatever will make them the most money.
Rather than paying USD1 million for a parcel with a 1% tax rate, imagine paying USD100,000 with a 10% rate, payable annually. Lowering the cost to acquire land for development lowers the price of what gets build on that land. No more luxe townhouses, more affordable homes.
You would no longer need to develop expensive homes/apartments to recoup your investment in land, making it possible to build affordable housing. Mixed developments (zoning permitted) would allow retail/commercial with residential development.
We should see increased construction that reflects what people want and can afford, once we reduce the initial cost of getting the land to build on.
Increased construction/housing supply drives down rents while spurring construction/competition within a built-up metro area with underused or disused parcels.
if you have to finance a million dollars for the land, you aren't going to build affordable homes. You're building high-end properties. You need to get your money back. And that's where many cities are stuck. High land prices, restrictive zoning = unaffordable, scarce inventory.
Those housing markets are full of well-appointed properties that are out of reach of working people but that make great investments/money-laundering vehicles/short-term rentals (AirBnB) for those who can afford them.
The end result is a dearth of affordable properties for working people and reduced economic activity in the local economy, as shelter costs consume more of worker wages. When properties are held by non-local investors, those rent payments are siphoned out of the local economy.
This — the notion of opportunity cost — seems to be ignored. Every $ I spend on rent is a dollar I can't spend at some new business. Local businesses should be very concerned about this but I never see any mention of it.
Seattle could really use this as way to get more land into productive use, lower rents and raise needed revenue. It could be tested in areas with clusters of disused but valuable parcels (Lake City Way at 105th? Where else?).
Taxing income or revenue depresses both — maybe not immediately but jobs are portable where land is not. Who knows, maybe we could get rid of B&O tax with something that works for everyone?
