Land Value Taxation and Housing Development

Effects of the Property Tax Reform
in Three Types of Cities

Steven C. Bourassa

[An excerpt reprinted from the
Amercian Journal of Economics and Sociology,
January 1990, Vol. 49, Issue 1]

Abstract: The effects of land value taxation on housing development in 3 disparate cities - Pittsburgh, McKeesport, and New Castle, Pennsylvania - were examined. The cities were representative of 3 different types of city: central city, suburban city, and relatively isolated city, respectively. It was argued that shifting taxes from buildings to land would have different effects in the different types of cities. A liquidity effect, caused by increases in the land tax rate, was expected to operate in all 3 types. An incentive effect, caused by decreases in the tax rate on improvements, was expected in central cities and, possibly, in relatively isolated cities. However, it was not expected to be important in suburban cities. The results found that an incentive effect was present in Pittsburgh, but not in the other 2 cities. There was no evidence of a liquidity effect in any of the cities. The results suggest that land value taxation is a desirable strategy for central cities seeking to encourage development and attract households. Because households are relatively mobile within metropolitan areas, LVT may permit central cities to attract households that would otherwise locate in nearby suburban jurisdictions.