Bounty for the Budget

Jeffery J. Smith

[A letter printed in the Portland Tribune, op-ed, 27 September, 2002.
Reprinted from GroundSwell, 2002]

Good schools, found researchers at the Federal Reserve, are second only to downtowns in generating land value. The better the school, the higher the surrounding site value. So, if schools create their own locational values, why not let school districts recover their "site rents" to fund themselves?

Schools aren't alone in spinning off land rent. Nobel laureate economist William Vickrey noted there's never been a public project that couldn't pay for itself from the land value it raises. Problem is, we don't recover it. We crave it.

Most people, if they have any equity at all, have only the value under their home. Dependent upon people moving in, not on anyone selling out, we've made ourselves a society of speculators. When speculators withhold prime sites from best use, they inflate housing costs, push out sprawl (which older residents are finding harder to afford), and exacerbate social ills like joblessness and crime.

Seeing the connections, some places use "geonomics". rent than the little we get from our property tax. In Australia, some towns levy a tax on site-value only, not on buildings. So owners built without raising their tax liability. Those towns enjoy 50% more built value per acre.

All the construction and use of new structures was good for business. During the last recession, while most places were losing business, these Aussie towns actually added new business. In Pennsylvania, the towns with higher rates on sites, lower on improvements, experience 16% more output per year.

Besides cutting taxes on buildings, some rent-tapping governments cut taxes on sales, business, or income. Hong Kong, by collecting much rent, keeps taxes quite low. So prices are low and investments high. Fortune magazine often voted the city "the world's best for business". Residents have one of the highest per capita incomes, and their mass transit operates efficiently without any subsidy.

A healthier economy mitigates social problems. Rand-McNally named Pittsburgh "America's Most Livable" twice, citing the city's affordable housing and low crime, both the best of any major US city. Pittsburgh taxed land six times higher than buildings, pricing out speculation, keeping housing costs down, and neighborhoods stable and thus safe.

Most of the extra economic action happens where it should - in cities - which helps heal the environment. Owners of central, more valuable lots are the ones most motivated to build, so in-fill happens. Johannesburg, South Africa, experienced the fastest site-recycling rate in the world, leaving little development to spill over onto fields and woods. A proposed shift of Boston's property tax, modeled in a computer, also projected a contraction of sprawl onto urban wasteland.

If Oregon fails to recover her skyrocketing land values, expect sprawl, social ills, and business to worsen. If Oregon does adopt what works, expect a better climate for business and residents - and thus land values higher yet. With a land-value tax, the problem won't be a budget crunch but an embarrassment of riches.

The kicker could become a fixture, similar to Alaska's oil dividend. Dedicating the first billion raised to, say, a dividend to registered voters could replace exemptions for anyone distressed and the equity homeowners hope to get back when they sell out (like a "community annuity" instead of one's "home equity"). A residential dividend might also garner the popular support needed for collecting the annual rental value for sites, resources, and government-granted privileges while shifting taxes off buildings, income, and business.

Does Oregon have too many jobs? No; so don't tax income. Too much affordable housing? So don't tax buildings. Not enough open space? So recover rent - the money we spend on the nature we use. Schools, and all social services, will be funded for life. For more information or the sources of data used, please get in touch. We give slideshows on the above.