The Land Value Tax
Advocating for the land value tax in Minnesota is currently our primary goal. This tax is aimed at using every piece of land to its full potential, conserving our natural resources, stopping the practice of land speculation, and creating a just and natural economic system.
A land value tax (LVT) shift involves taxing the land value portion of properties at a higher rate than the building value.
The current property tax system taxes the total value of properties. This includes both the land and any structures on top of it. Because the average property has most of its value in the building, the conventional property tax is mostly a tax on building value.
This creates perverse incentives for speculators to buy up vacant and underused sites and to avoid building intensive uses. For the speculator, as long as annual holding costs are lower than the site’s annual appreciation in value, it pays to hold out. For those who want to make the most of the site, the more building value they create, the more they pay in property taxes.
As a result, a significant portion of land in cities, particularly near downtown areas, remains locked up as surface parking lots or other low-intensity uses. This has big environmental implications. Dense, high-intensity land use promotes sustainable transportation habits by making it easier to walk, bike, and take transit. It also limits urban sprawl and the resulting loss of habitat by concentrating development in existing urbanized areas.
Places using land value tax shifts have experienced tremendous in-fill and redevelopment effects, along with other benefits. In the U.S., Pennsylvania has used this approach the most.
After Harrisburg, once one of the most distressed cities in the nation, adopted this approach in 1975, it saw 5,200 vacant properties restored and taxable businesses rise from 1,908 to 5,900. A number of smaller Pennsylvania towns saw dramatic increases in building permits issued and a majority of residents received tax reductions under the reform. A widely-cited study of LVT use in Pittsburgh showed that building construction there leapt ahead of other Rust Belt cities.
A recent chorus of voices from the fields of planning, architecture, and economics have called for the widespread adoption of this approach. For more specifics, see this report by Oregon’s Northwest Economic Research Center that was funded in part by Common Ground USA.
Rewilding is the process of giving land back to the natural and biodiverse ecosystems which we took from in order to develop land. The widespread single family use zoning of cities across our nation is the effect of a faulty tax system. One which, in order to expand and support the population, developers are incentivized to destroy hectares of native ecosystems at a time to make way for unaffordable and inefficient homes. The land value tax solves this through pushing developers to seek profit in more dense and infrastructure rich environments. As Minnesotans move to the missing middle, land can be given back to the environment for carbon capture or to support native wildlife.
More Information on the Land Value Tax
Here are some of our favorite articles and videos showing the advantages of implementing a land value tax.
Value Capture for Transportation Finance by Michael Lacono explains why the value of the land belongs to the community, how transportation infrastructure increases the value of the land, and why then it makes economic sense to use a land value tax to fund transportation projects.
Break the Boom and Bust Cycle by Rick and Walter Rybeck explains the causes of the patterns of rises and falls in our nation's economy and how the land value tax can stop this process.
Pennsylvania has a long history with the Land Value Tax and now has fifteen cities which have put this tax into practice. Pennsylvania's Success with Local Property Tax Reform by Alanna Hartzok documents how these cities have grown and benefited due to their taxes on land value.
Evaluating the Feasability and Burden Shifting Impacts of a Statewide Land Value Tax on Commercial and Industrial Property by Mark Haveman, the Program Director of the resarch arm of the Minnesota Taxpayers Association, is a study of the impacts of a Land Value Tax. This article followed the 2003 proposal of a Land Value Tax which failed due to lack of data on the benefits of a Land Value Tax in Minnesota. The goal of the article was to provide evidence in support of this policy and appease that need.
By making it inadvisable to hold onto underused land, a land value tax would promote density and deter development in sprawling neighborhoods. Greenest Place in the U.S.? It’s Not Where You Think by David Owen, writer for The New Yorker, shows why New York City is the most sustainable place in America and why this is caused by its density.
Increasing population density also makes cities more innovative and its people more productive. Larry Hardesty explains why in his Why Innovaton Thrives in Cities.