How Profit Shapes Urban Space
Jeffery J. Smith
[Reprinted from
EcoIQ Magazine 2008]
Like the rest of the universe, US cities keep expanding. Some time
before the universe begins to contract, American metro regions may,
too. What counterpart to gravity might suck suburbia back into the
hole of our doughnut cities? One of the most fundamental forces in the
world - money. 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." It 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.
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, whats 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, Minnesotas 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 Associations 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, whod 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 dont (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 Manhattans 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 localitys
funding sources to land value puts government squarely on the side of
the lands 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. They get zero tax burden on
any improvement. They get a vibrant economy in which to conduct
business. And as the built environment improves and the natural
environment heals for the formerly less fortunate, the prime owners
get to relax amid lower crime rates and less class tension.
Still, it may be easier to pull the idea of redirecting "rents"
than to push it, just as its easier for gravity to pull planets than
it is for other nuclear forces to push them. To create pull, reformers
could propose a Housing Voucher, funded from a hefty portion of the
collected revenue and good for rent, mortgage, or taxes. Land value in
many cities is astronomical. Tapping it, a locality could fund basic
services, repeal other taxes, and pay residents this income supplement
from the surplus, much like Alaskas oil dividend (that Gaffney
consulted on). Being included in the apportioning of ground rent,
residents might be more likely to warm up to the idea and urge its
adoption. And the bigger the share, the stronger the longing.
As land values rise, so would ones 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. Its
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 theyre supposed to go. The PTS can do so
as long as we ride this planet around the sun.
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