This article is part of the Under the Lens series
Shelter in a Federal Storm: State and Local Housing Solutions for a Time of Federal Hostility
Property taxes, which tend to increase along with home prices, are often painted as drivers of unaffordability. Following years of strong real estate market growth, a vocal anti–property tax movement has taken shape, and officials in states like Florida, Idaho, Illinois, and Kansas have made moves to curtail and even eliminate it completely for certain classes of taxpayers.
“Communities and governments across America are awakening to the realization that structures they’ve historically relied upon have not been serving them,” explains Jack Farrell, a research attorney with YIMBY Law. “In fact, many of these legal and societal structures are making affordability worse. That’s causing them to reexamine ideas they wouldn’t have touched previously, [including] basic principles of taxation.”
While the appeal of immediately lowering the carrying costs of people’s homes and businesses is obvious, throwing away the baby that is property taxation with the bathwater of unaffordability would be immensely unwise. The property taxes of today actually have a lot to recommend them—and with just a small change in how they are calculated, property taxes can go from a mostly do-no-harm measure to a powerful tool in the fight for affordable housing.
Critics of the anti–property tax movement are quick to point out the most obvious reason for continuing to tax property: the centrality of the resulting revenues in funding local public goods and services. “We all need more money to achieve the things that we want. For most local municipalities, the main tool to generate that funding is the property tax,” explains Daryl Fairweather, Redfin’s chief economist.
Fairweather is not wrong. Today, 70 percent of all local tax revenue in the U.S. is generated by property taxes. If Americans were to suddenly stop “pay[ing] rent to the government,” as Florida Gov. Ron DeSantis put it, the resulting shortfalls would be staggering. And, barring some as yet undiscovered fiscal stopgap, those shortfalls would likely be made up through increased reliance on other, less transparent, more distortionary, and regressive revenue sources like fines, fees, and sales and income taxes.
Beyond sending municipalities scrambling to fill budget shortfalls, moving to eliminate property taxes would have other, potentially more insidious effects. Stripped of their taxing authority, local governments would become significantly more reliant on the higher levels of government that control the remaining revenue streams. This could reduce the public funding disparities between more and less affluent communities, but it would also curtail local autonomy and limit municipalities’ ability to deliver the types, amounts, and qualities of public goods and services needed to meet local needs. It is worth keeping these potential downsides in mind, especially given our current political climate.
While the anti–property tax movement is busy garnering headlines, a countermovement is quietly taking shape. Across the country, people are coming together not only to defend property taxes but also to utilize them as a tool in the fight for affordable housing—and as a local bulwark against overreach by higher levels of government.
“The prevailing conversation is so negative around property taxes,” notes Nick Allen, a Ph.D. candidate in MIT’s Department of Urban Studies and a central figure in Detroit’s recent property tax reform work, “but they are a stable source of revenue, and they let local governments get value back from delivering good services. They can absolutely be used in support of community building efforts.”
The key to unlocking the community-building potential of property taxes? The tax rate—or, more accurately, the tax rates.
“A traditional property tax uses one rate to calculate the tax bill on both buildings and land values,” explains Russell Richie, director of strategy and impact at the Progress & Poverty Institute and the treasurer of Philadelphia-based urbanist group 5th Square Advocacy. “So, if you invest in a property you own by putting up a building or improving something that’s already built, your tax bill goes up—and not just once. You pay a ‘tax penalty’ for your investment year after year. But if you don’t improve your land—if you hold on to it and speculate—your bill stays low. So, if you’re living in a community that actually wants investment and development,” Richie concludes, “you can do whatever you want with zoning, but at the end of the day, you’ve got this silent force working against you. That’s where LVT comes in.”
LVT, or land value tax, replaces the traditional property tax’s single rate with two distinct rates. Often called a “split-rate tax,” the policy specifically taxes land at a higher rate than it taxes buildings.
“Land value tax untaxes buildings to the greatest extent possible, and instead taxes land values,” explains Josh Vincent, the executive director of the Center for the Study of Economics, an independent, Pennsylvania-based nonprofit that focuses extensively on LVT. “This has two effects: There’s the carrot effect of untaxing buildings, but there’s also the stick approach, which is to make it harder and costlier to hold on to vacant land.”
Despite its similarities to a traditional property tax, LVT provides unique benefits. Besides discouraging land speculation and encouraging investment, LVTs are often more progressive than traditional property taxes, helping to alleviate financial strain on low-income households. Since land can’t be moved or hidden to avoid taxation, LVT is also an undeniably stable source of public revenue.
When properly conceived, shifting to an LVT is done in a revenue-neutral way, ensuring the steady flow of vital public revenue. This shift can also incorporate existing assessment data and tax exemption and abatement policies, such as those already in place to lessen tax liabilities for older residents, veterans, or owner-occupied residences.
“[With an LVT,] you have a tax that has these nice, low-avoidance effects; doesn’t discourage investment; and also basically concentrates the burden on people who have the most ability to pay,” Allen says, enumerating LVT’s major selling points.
A quick look at Google Trends for the term “land value tax” shows a marked increase in public interest in recent years—but LVT is far from a new idea. First popularized in the 19th century by outspoken social reformer and darling of the working class, Henry George, LVT has a long and successful history of implementation in countries like Australia, Denmark, and Estonia.
Although split-rate taxation has seen less widespread adoption in the U.S., it has been implemented multiple times over the last 100 years—with demonstrable success—in 20 municipalities across Pennsylvania.
Studies of the “Pennsylvania Experience” with LVT consistently show that the policy yields positive outcomes for the municipalities that rely on it. And this statistical significance is borne out in communities’ real-world experiences.
“Land value tax seemed to be a very good solution to the particular situation that we were looking at,” explains Tom Kramer, the former mayor of Millbourne, Pennsylvania, a community that suffered major financial difficulties after losing a longtime anchor retail establishment, which led to the municipality being designated as financially distressed in 1993. “Beyond the fact that [LVT] significantly lowered the homeowners’ property taxes by almost a third, on average, it incentivize[d] development.” Among the Millbourne sites redeveloped following LVT adoption was the vacant commercial site where the retail anchor had closed. It is now home to a new, tax-paying business.
Success stories like Millbourne’s tend to spread, and today, there are numerous efforts across the country aiming to shift property tax burdens off of improvement values and onto land. LVT is also increasingly popping up in policy discussions across the country, from activist-oriented convenings like the Strong Towns Annual Gathering and YIMBYtown to practitioner-focused events like the National Community Reinvestment Coalition’s Just Economy Conference and regional American Planning Association events to academic forums like Wharton’s Future of Cities conference and the upcoming Urban Affairs Association conference in Chicago.
And it’s not just talk. Besides Pennsylvania, where split-rate taxation has long been employed, it has been legal in four cities in Virginia since 2020, though none have enacted it yet. In early March, Virginia passed HB 282, which adds four more cities where it is allowed.
Of these cities, Richmond has supported in-depth studies of LVT’s likely impacts, especially the potential outcomes of combining an LVT with an extensive rezoning effort focused largely on encouraging denser land uses.
Colorado, Minnesota, and New York are poised to follow Virginia’s lead in allowing municipalities to opt in to a local LVT. “As with taxing structures and community opinion, the laws on this topic are evolving. Sometimes they are unclear, sometimes they are in opposition, but they are subject to change,” explains Farrell, who has been involved in several LVT legalization efforts.
Rich Nymoen, the president of Common Ground USA, explains why his organization is pushing Minnesota officials to pass LVT-enabling legislation that would directly b enefit Minneapolis. “We began getting some traction for the bill after the unrest [following the murder of] George Floyd. A lot of properties were damaged in that unrest, and legislators were hearing from the owners of some of the properties that it just didn’t make sense for them to rebuild, cost-wise.” The COVID-19 pandemic also affected the vitality of office and commercial real estate in the city, adding to LVT’s appeal. “It’s going to make it cheaper to rebuild, because you’re not taxing the building value, and it’s going to discourage people just sitting on the sites,” Nymoen says.
New York’s motivations for exploring the policy are similar. “We see new housing pressure, especially in Syracuse, with rising rents and increased homelessness. At the same time, we see vacant or underused lots in high-demand areas, which increases the tax burden on homes in residential neighborhoods,” writes state Sen. Rachel May, the sponsor of S.B. S1131A, in an email. The bill, if passed, would establish LVT pilot programs in up to five communities throughout the state. “A split-rate or land value tax scheme could be a great tool for many of our Upstate cities,” she explains. “By giving municipalities the freedom to implement this type of tax, we can spur the construction of housing that we desperately need in a way that promotes the highest, best use of land—building the type of walkable, affordable, thriving communities we want to see.”
Similar property tax reform conversations are ongoing in Colorado. “[Colorado is] a quickly growing state, but we still have pockets of blight, we still have huge affordability issues, [and] we still have huge land speculation issues in urban cores,” explains Kevin Amirehsani, a senior tax policy advisor to Gov. Jared Polis. “What our proposed bill will do is basically let local governments, local districts, opt in to split their mill levies. We want to empower local districts to make that call themselves.”
Regional and municipal-level efforts are also plentiful. In Washington State, for example, Spokane seems ready to embrace LVT, and Seattle may not be far behind. “The Spokane City Council, after upzoning, has been looking around, asking, ‘How else can we spur development?’” remarks Greg Miller, the executive director of the Center for Land Economics, an LVT-focused nonprofit working closely with Washington officials. “How can we particularly spur development on our vacant parcels and the parking lots and valuable territory in the downtown corridors?” The answer to these questions, according to Miller and many others, is adopting an LVT.
Elsewhere, activists have long pushed to bring a split-rate property tax to Baltimore, and the Maryland General Assembly is considering H.B. 1178, a bill that would give the city the right to do so. In Ohio, Republican Senator Blessing has proposed a constitutional amendment to permit the use of LVT. Pittsburgh, once the poster child for LVT-driven redevelopment, may be about to reintroduce the split-rate tax system, having repealed it in 2001 after an unrelated and long overdue citywide property reassessment caused tax liabilities to skyrocket. Detroit has probably had the most visible flirtation with the split-rate tax. It was a signature policy of Mike Duggan—the former mayor of Detroit and a current gubernatorial candidate—though he did not succeed in implementing it, and it looks like the LVT mantle could be taken up by his successor, Mayor Mary Sheffield.
And all this says nothing of the many nascent efforts to promote LVT driven by individual urbanists, policy wonks, city and state officials’ staffers, and candidates for elected office who recognize LVT’s potential and want to introduce it to their hometowns.
“A land value tax works because it doesn’t discourage investment or economic growth,” Fairweather says. “I think it’s a really valuable tool for municipalities to explore.”
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5 thoughts on “Property Taxes Aren’t the Cause of Our Housing Crisis, They’re a Solution to It”
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Excellent article.
Despite compelling economic evidence that this tax reform promotes more affordable and sustainable development, implementation has been rather scarce. Part of this is due to vocabulary. For academics and policy wonks, the notion of a “land value tax” sounds interesting and worth exploring. But to most people, “land value tax” sounds like a new tax. And most people hate taxes. They don’t want to pay a new tax and they’ve heard that taxes are bad for the economy.
As Ms. Faass point out, a land value tax isn’t new. It’s already embedded in the existing property tax. But once somebody has formed an opinion about “LVT,” the explanation that “it’s not really a new tax” will fall on deaf ears. So, if you’re interested in implementation, I would recommend better language.
First, emphasize reducing the tax rate applied to building values. Everybody hates this and agrees that it’s counter-productive. If you say, “we want to reduce the property tax rate applied to the value of your home or your commercial building” you’ll get lots of interest.
Of course, people will ask, “How will you pay for that?” And your response could be, “We’ll simply return more of the community-created land value back to the community that created it in the first place.” Your audience will think that sounds fair and reasonable.
“What do you call this reform?” We call it a UNIVERSAL TAX ABATEMENT because EVERYBODY who owns a building will pay lower taxes. And the mechanism of implementing this universal abatement in a “LAND VALUE RETURN TAX SHIFT.” This entails a lower tax rate applied to privately-created building values combined with a higher rate applied to community-created land values.
This vocabulary could help move this policy from a “great idea” to “my town’s success story!”
Thank you for focusing on the key issue of taxation and public (community) value. A few questions remain. Beyond using different rates for land and buildings, how is the value of the land assessed, both pre- and post-development? Same question for the building: who assessed its value how, both pre- and post-improvement? It’s one thing I’ve never understood about George’s otherwise compelling proposal that argues that the value of real estate is largely determined by its location and others’ (including public) investment.
From a mass appraisal standpoint, accurately valuing land and improvement separately can be tough in an urban area that has little vacant land. For the example of the parking lot, you would have to remove the value of the asphalt (the improvement). Also, think about how the assessed value of all those large buildings in a downtown area will not be taxed anymore. Overall, people with smaller than average buildings (homes & small businesses) will have to pay more than they do now and people with larger buildings (corporations) will pay less. Doesn’t really make sense to me.
There have been a lot of advances in our ability to accurately value vacant land using mass appraisal techniques. Yes, vacant comps are part of it, but there are numerous other variables that are now routinely used, and the former wisdom espoused by the assessing community that “it’s impossible to accurately value land” just doesn’t hold water.
For a commercial example of mass appraisal software that’s been created with accurate land valuation at its core, check out Valuebase (https://www.valuebase.ai/) or, for a really cool open access software package that’s great at valuing land under all sorts of conditions, check out OpenAVMKit (https://www.openavmkit.com/).
And with regard to regressivity (which is what you’re basically getting at with the notion that corporations pay more than people with homes and small businesses), LVT shift analyses consistently show that owners of less valuable parcels pay less (i.e. LVT is generally more progressive than traditional property taxes). To see some examples, check out the analyses available here via the U.S. map: https://progressandpovertyinstitute.org/community-research-and-advocacy/
A further note on regressivity/progressivity: in instances where a move to LVT does put added burden on (for example) homeowners, it’s usually the result of other pre-existing constraints baked into the tax system (for example, mandated rate ratios and caps), not the assessment-tax rate relationship itself. (Meaning LVT regressivity, in the odd occasions when it occurs, is the product of other tax policies, which can be adjusted, if needed.)
Here is an alternative to the HG method, but it is in effect the same thing but without offending the landowner. This poem was part of an answer to a question by David Tiggs at a HG conference where he asked: “how can LVT be made attractive to landowners?”
A MORE STEALTHY GEORGIST CAT
The Georgist cat is small and lean
And often doesn’t get to be seen.
It hides in the branches of an economic’s-tree
So it takes a long while for you or for me,
To appreciate its cute and original form
That the landlords are so ready to scorn.
The economic’s-tree has many fine branches
(On which we contend, there are no free-lunches).
Whilst the land-owning rich in the city all claim
As bloated capitalists, that they’re not to blame
For the gap that lays ‘twixt the poor and the wealthy,
But oppose any tax to make our nation healthy.
Have you heard the tale of a committee, that
Thought to bell and get warning of a fat cat?
But could not find a soul to apply this device,
Because typically all were a council of mice!
Our Georgist cat has a bell ready-fitted,
(Which makes this analogy more to be pitted).
This warning sound makes our ideals unwanted,
For a new tax is how politicians get doubted.
So the Georgist cat fails to catch any mice
That pose as landlords, along with their vice.
But how shall we silence the bell’s warning sound
And quieten the news that our pussy’s around?
Our Georgist feline is in serious error,
‘Cause its bell draws attention not only to whether
Valuable sites can be ethically shared,
But also the rent from a site is declared
As the means to replace other kinds of taxation,
Which obviously causes the landlords vexation.
In the economic’s tree many other beasts lurk
But are missed, after learning of Henry G’s quirk
Through the cat-finder’s recently brilliant discovery.
This writer seeks a new means for recovery
From our politi-unacceptable claim,
And stealthily project LVT once again.
If we would but examine some more of the tree
Alternatives are waiting there for us to see.
Among them is hiding a far better way
For an equivalent LVT effect, to stay
In essence, without causing such evil offences
To the landlords and their partitioning fences.
When a property-owner decides to sell–quick
The gov’ment buys its land, and not the public!
Its occupant then leases it for a similar fee
To the One-Tax of Henry George’s decree.
Any buildings on-site should be sold as previously
But without the land, on which the price grievously
Had risen, with huge speculation in its advance
That stopped entrepreneurs from having a chance.
The cost of this land must be raised through new bonds
Which the government sells and the public responds,
‘Though their interest-rate’s a bit lower than rent,
Their returns are more stable than the average tenant!
This process will take many years to complete–
So its financial support is no great money feat.
After the lease-fees begin to collect,
Gov’ments can tax less, and firmly expect
To pursue this policy without change, until
All the lease-fees are site-rents in the Gov’ment’s till.
With the land properly shared, the government sees
That site development stays with the current leasees.
Other taxes that cause so much trouble and hate
Are scrapped, with great pleasure to all in the state,
Except for some bankers and the tax collectors
Whose actions no longer apply in these sectors.
Land-rights will be shared through this simple device,
By a fast-growing country that takes our advice.