Five Ways to Start Enacting Land Value Taxation

Steven Cord

[Reprinted from GroundSwell, March-April 2010]

Obey the law -- Land assessments are often assessed lower to market value than buildings in violation of existing law, so obey the law by assessing them both at the same ratio to market value. Even better: legally require land assessments to be assessed closer to market value than buildings.

(2) Establish a two-rate property tax -- Levy a higher tax rate on land assessments than on building assessments, using these formulas: (1) PBTR (proposed building tax rate) = 80% x CBTR (current building tax rate); a percentage other than 80% can be used; decrease it in later years. (2) PLTR (proposed land tax rate) = CBTR - PBTR, x BA/LA, + CLTR (current land tax rate). BA is total building assessments and LA is total land assessments. Or use this formula: PLTR = Revenue - (BA x BTR)/LA.

(3) Reduce building assessments (perhaps by 20% or by $20,000) but not land assessments, to be paid for by a property-tax increase (preferably on land only) in order to achieve revenue neutrality. Most property owners would pay less because their reduc tion would exceed their higher property tax. All renters (both residential & office) would pay less in the long run since the land tax can’t be passed on to them (read any economics text on this); the building tax can be passed on to them, but it will be less.

(4) Establish a separate property tax on land assessments only in order to fund a new or existing expense. Most voters will pay less this way than with any other tax.

(5) Double the tax rate on vacant land, using the revenue to reduce the property tax on new construction & renovation at those sites. Be sure to popularize the likely increase in building permits issued (for all the above proposals also).

Possibly specify that no property owner need pay more than 3% plus the BLS inflation rate over what was paid in the previous year. For more information, contact Steven B. Cord (Professor-Emeritus IUP), now Research Director, Center for the Study of Economics, 10528 Cross Fox Lane, Columbia MD 21044, 410 997-1182,

Peer-Reviewed

In 1995, Professor Nicolaus Tideman of Virginia Tech University and his graduate student, Florenz Plassmann (now a professor at the University of Binghamton) completed a highly technical study of land value taxation as used in all the cities in Pennsylvania using such a tax; it was entitled “A Markov Chain Monte Carlo Analysis of the Effect of Two-Rate Property Taxes on Construction.” It was peer-reviewed and published in the Journal of Urban Economics (3/00, pp. 216-47). It concluded (italics added):

“The results say that in all four categories of construction, an increase in the effective tax differential [between land and buildings] (1) is associated with an increase in the average value per permit. (2) In the case of residential housing, a 1% increase in the effective tax differential is associated with a 12% increase in the average value per unit.

“From the perspective of economic theory, it is not at all surprising that when taxes are taken off of buildings, people build more valuable buildings. But it is nice to see the numbers.”

This study confirmed all the Pennsylvania studies completed when this study was done (then 15, now 20). Hundreds more empirical studies are available for the asking.