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Detroit wants to be the first big American city to tax land value

474 points| lxm | 2 years ago |economist.com

887 comments

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[+] ejstronge|2 years ago|reply
Perhaps someone who has thought about this more can explain how a 'land value tax' differs from existing property tax regimes that explicitly examine the value of improvements and the value of land...

This Detroit case is interesting because there are different rates of taxation on the land, but the difference in rate could also be obtained by increasing the land component of a parcel's value.

[+] red_admiral|2 years ago|reply
Land value tax is an idea by Henry George - the guy who coined the phrase "the rent is too damn high". His idea is among other things that a property tax discourages investment - one way to make money as an investor is to hold a plot of empty land in a desirable city centre location, watch it go up in value, and neither pay tax on any development on it nor bother with messy things such as tenants. Taxing the land value, according to George, removes that perverse incentive.

For a more detailed overview, I recommend Lars Doucet's review of George's Progress and Poverty, which won the Astral Codex Ten book review contest a year ago: https://www.astralcodexten.com/p/your-book-review-progress-a...

I really like the style, but you need to put an hour or so aside to read the whole thing. For me, it was definitely worth the time!

[+] unyttigfjelltol|2 years ago|reply
They are loading the tax burden on the land rather than on structures. So, you can build the Taj Mahal or leave the lot a burned out wreck-- either way you pay the same tax. Many comments on the thread overstate what this is.

I happen to think it's interesting, but for reasons unrelated to the article-- it's kinda goofy for the state to tax personal property that happens to be fixed to a location, like a fireplace, stained glass window or chandelier. Tax a house on a foundation; no tax for a house on wheels? This "LVT" scheme does away with those issues so folks can fix whatever they want to the location, so it makes more sense logically even if the connection to Detroit's problems is very unclear.

[+] TulliusCicero|2 years ago|reply
Land value taxes don't factor in improvements. Improving the land results in no property tax change, so they incentivize doing more useful things with the land.
[+] BariumBlue|2 years ago|reply
Property tax: The more of your money you invest into your property, the more you pay for taxes (punishing investment)

Land value tax: Your tax is unchanged on how much you invest in your properties. A rundown parking lot pays the same amount of tax as the next door skyscraper (encouraging development of limited, high value land, and punishing lazy speculation).

Land value tax is a simple, elegant way to incentivize more (and more efficient) economic development.

[+] mattgibson|2 years ago|reply
Land prices go up when poeple have more mooney and go down when people have less. The root cause is that land is unique in the economy because it both cannot be manufactured and cannot be moved. Each piece of land is therefore unique and no one can increase supply in response to demand. Renting or purchasing land is essentially an auction and the price is set by the highest bidder. Economists call this a "monopoly price" because it's the same effect you would get if someone has a monopoly and can raise prices at will. This is in contrast to competitive prices which sink lower and lower until they bump up against the actual cost of getting the work done to provide that product or service.

Land value is therefore a really weird part of the economy that allows people to charge money without doing any work or providing any value in return. If we confiscate all the money people charge to rent or buy land, nothing changes because no work was ever happening. The land is still there and still just as useful. Contrast that with anything where work is actually done - the industry would collapse if you confiscate the money. Taxing land value therefore allows the government to reclaim the money which those people should not be able to charge in the first place (if there was free market competition). When this happens, counter-intuitively, land prices do not rise (because the highest bid in the auction doesn't change) and there is no negative affect on production or jobs (because no one is employed to manufacture or maintain land). We know this because economic theory predicts it and various countries have already tried it. Instead, other taxes can be cut or eliminated due to the enourmous boost in government income, which has very positive effects on the rest of the economy. Understanding how this works is deeply counter-intuitive and so people usually think that a shortage of buildings is driving property/land values because it's easy to make sense of.

To directly answer your question: if you tax the land value as set by the current market, you don't have to worry about assessing other factors that SHOULD lead to higher taxes because the people trying to buy the land have already done that. That's why they are offering a higher price. It's simple and therefore cheap and easy to administer. Also essentially immune to tax dodging because you can't hide the asset.

[+] rpastuszak|2 years ago|reply
Since other comments already mention Georgism, here's a related piece of trivia:

The game Monopoly was originally called The Landlord's Game and meant to demonstrated the issues of land monopolism.

It was created by Lizzie Magie, a designer and political activist: https://en.wikipedia.org/wiki/Lizzie_Magie

Another (somewhat more niche) piece of trivia: (80s-90s) Poland had its own version of Monopoly called Eurobiznes/Eurobusiness: https://pl.wikipedia.org/wiki/Eurobusiness

[+] gnopgnip|2 years ago|reply
Existing tax policies focus on the current market value of the land. Compared to a land value tax, existing tax policies under assess poorly used land or vacant land and the owners pay much less in taxes. This encourages speculation and discourages productive use.

The assessor can't the change the share of land vs structure unfairly any more than they can increase the assessed value unfairly. A homeowner can protest the assessment and provide comparable sales and other estimates that show a more objective split of value.

Michigan property taxes are interesting in another way, they have had issues with "dark store" restrictive covenants for commercial and industrial real estate. Basically the owner of a large commercial building argues the land/building has very little value on the open market, it is a single use building with restrictive covenants that prevent an alternative use. These restrictive covenants prevent the land from being sold to their main competitors, and these restrictive covenants are self imposed.

[+] somethoughts|2 years ago|reply
Agreed - the many counties in the US already have a portion of the property tax bill coming from a land value tax/Georgianism.

California property tax bills have two components [1][2]:

- structure/improvement assessed value

- land value assessed value

The land value component is re-accessed frequently and changes based on comparables (presumably but its mostly black box).

The question is to what degree/portion of Georgianism to apply and what to do when the land value component starts going up infinitely that its starts hurting the electorate.

Do you introduce alternative tax sources (i.e. income)? Do you introduce caps on annual land value increases or add a bunch of waivers for specific use cases (i.e. primary homes, day cares)?

Or do you just stick with the unrelenting assessed value increases and go free market/no pain no gain/survival of the fittest on the electorate?

Basically Texas is basically the US experiment closest to pure Georgianism.

[1] https://www.propertytax.lacounty.gov/Home/AnnualSecuredPrope...

[+] inglor_cz|2 years ago|reply
Unlike property tax, land value tax punishes you for leaving valuable land (e.g surrounded by lively business buildings) intentionally undeveloped or underdeveloped.

The only problem that I can see with this approach is landscaping. It is valuable to have a nice park in the center of a city, if only for the cooling down that it provides, but parks don't make money and land value tax would incentivize people who own them to bulldoze the park and build something in its place.

Perhaps this could be solved with certain exemptions. But these are subject to the usual corruption, e.g. someone leaves a really bad parking lot in place and his friends in the town hall simply categorize it as a park.

[+] acchow|2 years ago|reply
Taxing the structure on the land is a negative incentive on developing the land
[+] ab_goat|2 years ago|reply
I've been thinking about local taxes a lot recently (I've been a locally elected selectman for a tiny town in MA) and realized that the automobile ruined the way we value land, which ultimate ruined the way that municipalities are able to control costs and spend their taxes to add value.

I'd write more, but only if someone responds to this.

[+] gred|2 years ago|reply
I hope they do try it. If they do, one of two thing will happen. Either it will fail dramatically, in which case the LVT muppets can finally shut up about it... or it will succeed, all of our cities will migrate to this new utopian taxation scheme, and the LVT muppets can finally shut up about it.
[+] s_dev|2 years ago|reply
>LVT muppets

You're attacking the person rather than the idea.

Experiments are good, even if they fail to confirm a hypothesis because we can learn more. Sounds like your mind is made up before the experiment though.

[+] bigDinosaur|2 years ago|reply
There are many ways of implementing it and many reasons it may fail or succeed, but you've made your extreme bias clear. What was the purpose of your comment? To feel superior despite not having the slightest actual argument to present? Let me guess, you feel the same way about congestion taxes.
[+] huytersd|2 years ago|reply
Or a third way which would be the most reasonable, if it succeeds only those cities that are derelict and need to turn things around would implement this.
[+] Tiktaalik|2 years ago|reply
Folks already ventured the idea in Henry George’s own time and after then.

For some weird reason (laziness?) no one is going back to see why in these cases the idea was repealed.

[+] cosmojg|2 years ago|reply
Indeed, I can't wait to shut up about this!
[+] jmyeet|2 years ago|reply
Whehter you property value or land value pales in comparison to other aspects of your taxation system. Basically, do the complete opposite of what California has done. A summary:

1. Prop 13 in the 1970s was the incumbent homeowners voting in a massive generational tax break. It capped annual property tax raises for really no reason. Worse, it allowed your children to inherit those tax rates (as well as inherit your property on a stepped up basis so you didn't pay any CGT either). Only in recent years did this get cut back slightly. If you own multiple properties, only one (the primary residence) gets to have its beneficial tax rate inherited. And that measure only passed by (IIRC) 51%;

2. Corporations get the same capped tax increases and don't have to worry about inheritance. Disney World had its tax rate set in the 1960s so it paying a pittance. The LLCs can get bought and sold without resetting the property tax rate to assessed value as would happen if the property was sold;

3. For old people who may be sitting on massive land value that you may not want to evict straight away, just do what Texas does: accrue property tax but defer it to their death with a lien on the property. This gives people a choice between staying and paying later or downsizing.

Prop 13 may seem great if you're a longstanding homeowner but the thing is, it's a trap. You can't move because if you sell your property you lose your beneficial tax status. People should have mobility and generational wealth isn't who we should be giving massive tax breaks to anyway.

If you get these things wrong property vs land value makes absolutely no difference.

[+] AlbertCory|2 years ago|reply
(I lived in the Detroit area for nine months)

"Getting rid of the speculators" sounds good and might even BE good. But you know, Detroit's been in decline since the 1967 riots. No conceivable LVT is going to be a game changer. If the land isn't worth anything because no one wants to live there, that's the end of the story.

[+] Brycee|2 years ago|reply
If you dramatically reduce taxes to labour and capital, it quickly becomes a very attractive place to move your business or earn an income. And that's the start of a development flywheel. Instead of taxing productivity, land taxes reabsorb the value generated by the community (positive externalities), which would otherwise flow into the pocket of the guy who owns a parcel of land in proximity to the public good. You then use these tax revenues to produce more public goods, which benefit everyone, and then suck up the value that accrues to the land. rinse and repeat.

I highly recommend grabbing a copy of land is a big deal. https://www.amazon.ca/Land-Big-Deal-wages-about-ebook/dp/B0B...

[+] woliveirajr|2 years ago|reply
Pufff, Brazil does that since forever. By paying some tax over your land, basically your government is taking it from you every generation or two.

Roughly, 2% each year and in 50 years and it's gone.

[+] harimau777|2 years ago|reply
You are already paying taxes, Land Value Taxes just seek to be a more efficient (since they try to target rent seeking rather than profitable labor) and more just (since they target land that the owner didn't create) form of taxation.

So arguing that it's effectively the government stealing your property is only a valid argument if you are arguing that all taxation is theft. If that's what you believe then that's fine, but it would be better to be upfront about what argument you are making.

[+] r00fus|2 years ago|reply
"We sit together

The mountain and me

Until only the mountain remains"

-Li Po

Maybe the land isn't really yours to begin with?

[+] adverbly|2 years ago|reply
I do not see Brazil under the Wikipedia section for implementations of land value tax. I tried to look myself, but did not see a definitive answer. It sounds like there is a property tax, but a property tax is different from a land value tax.

Also, 2% is in a similar range to many existing implementations, and has been shown to be too low to prevent speculation.

Your comment about "it's gone" shows that you do not understand the intent here. I would recommend you watch the following: https://m.youtube.com/watch?v=h59se33UCK4

In short, the land is not gone. The profits you made if you rented it out are not gone. However, any hope of increased value through speculation will be diminished based on how long you held the high value asset prior to sale... which is the exact intent of this policy change.

[+] epistasis|2 years ago|reply
That's only if you derive zero value or income from the land. In which case, perhaps the land is not in the hands of the best steward.
[+] groby_b|2 years ago|reply
Given that it was never "your" land to begin with (what, did you create it?), that's not an unreasonable approach.
[+] phailhaus|2 years ago|reply
What do you mean by "gone"? You still own it.
[+] quickthrower2|2 years ago|reply
If they don’t then you are taking it away from other people by owning it.
[+] Yodel0914|2 years ago|reply
It's the same in Australia. It seems like a pretty sensible way to encourage the best use of high value land.
[+] jacobjjacob|2 years ago|reply
It’s basically a monthly occurrence that someone bulldozes and old building in Detroit to build a parking lot. The center of downtown is a crater of surface lots.

The idea is that people would be more incentivized to build with the land, because it would impact taxes as much, but at the same time they would pay a higher base rate if they underutilize it.

[+] hknmtt|2 years ago|reply
Strangely, I am in europe and here there is separate property and land tax and as far as i know it always was like that. Land is based on size and property based on purchasing price. Although some politicians want to change the land tax(so people pay more).
[+] tlocke|2 years ago|reply
Out of interest, whereabouts in Europe is that?
[+] mjamesaustin|2 years ago|reply
I'm a big proponent of Land Value Tax. In theory it is one of the healthiest forms of taxation since supply is fixed. It encourages efficient use of land and discourages owners from squatting on undeveloped land just to reap value from its location.

https://en.wikipedia.org/wiki/Land_value_tax

[+] rmason|2 years ago|reply
If you want an in depth on why this is a bad idea look up Charlie LeDuff's videos on his No BS News Hour show on YouTube. No one covers both Detroit and Michigan politics any better. He has done several hour long shows on this tax scheme. In short the only big city to ever try it was Pittsburgh and they abandoned it after a few short years.

https://www.youtube.com/@NoBSNewshour

[+] friend_and_foe|2 years ago|reply
Oh man, I was hoping that this would be one of those things where they tax land to encourage new building, but it's just another city hurting for revenue looking to squeeze it's population a little more.

Not that it won't spur development. It will. But not as much as anyone hopes. They have to eliminate taxes on all improvements to the land and tax the land itself only. Also remove code and zoning restrictions on it. They could rebuild the city if they got serious about it.

[+] calgarymicro|2 years ago|reply
> the city’s property tax will be reduced from 2% for every $1 of assessed value (which is less than market value) to 0.6%. To make up for the revenues lost, land will be taxed at a new rate of 11.8%

This sounds like it's revenue neutral, so it doesn't seem like they're squeezing more. Also, they didn't eliminate all taxes on improvements, but cutting them by two thirds is still pretty good.

If the city is to be believed, most of Detroit's residents and business will actually be unsqueezed.[0]

> The city estimates that the LVT plan would reduce property taxes for 97 percent of Detroit homeowners and 70 percent of small businesses

[0]https://www.taxpolicycenter.org/taxvox/detroit-considers-shi...

[+] mrdrippy|2 years ago|reply
It only encourages new building for people who can afford to develop the land. It would likely discourage small time investors and further the concentration of corporate owned real estate.
[+] dheera|2 years ago|reply
Yep, if I own something I'd better own it. I shouldn't have to pay rent for owning land, or pay rent for owning a house.

I'll just keep renting, I guess, since it makes no difference.

[+] poulsbohemian|2 years ago|reply
Reading the article and the threads below, I have to wonder if there's something unique to Detroit or other areas of the country exploring this land value taxation concept... for example, in my (WA) residential tax statement, there's already a breakdown of the value of the land from its enhancements (IE: my house). Similarly, an alfalfa field (bare land) is going to be taxed at a different rate than that same field having been rezoned as residential and ready for the construction of 200 new homes. That same lot, zoned commercial in the middle of our little town, would have still another tax rate. The state of Oregon is even so kind as to tell you both the value at which they are taxing your property, plus what they believe the market value for the property. So... does Michigan and/or the county and city do something different here? Really trying to understand whether there is an actual tax policy / structure problem, or as the quote at the bottom of the article indicates "We currently have an assessment division that’s not doing its job".
[+] nickik|2 years ago|reply
While I love this in general. It should also be mentioned that there are systematic falures in how land valuation works in the US currently. While in general taxing land value makes much more sense, with a proper system of land value valuation this is still far from optimal.

There is a real question on how utilities and services should be paid for. There are places where water is really cheap to provide and then subburbs that require multible expensive pump stations yet they pay the same amount for water.

This incurages building in the wrong places and a land value tax by itself does not fix these things.

In addition the city also needs to strongly evaluate how it uses its land, specially things like on street parking.

Check out some of the work by Urban3 on land value, tax income and so on. Thy have fantastic visualisation that have changed my view on some things.

So yeah, land value tax, go for it, much better system. It allignes insentives better, but there are many otjer distorting effects. Its one piece of a much larger puzzle in terms of how to make great cities with great urbanism.

[+] gen220|2 years ago|reply
OK, I’ve been cooking this idea for a while, curious to get others thoughts.

What if we applied a nominal real estate tax, but applied a differential rate to real estate that’s used for rent seeking?

i.e. if you rented your property for N/60 of the previous 60 months, you’re taxed progressively and exponentially.

I know this would depress real estate prices and reduce the volume of housing available for rent. This is the goal: I want property to be owned by local residents and affordable to local residents, because I think it makes better communities and citizens.

Can you all help me poke him in this idea?

[+] mannyv|2 years ago|reply
Assessment is the bugbear of any property tax system. The assessors are employed by the entity that will be harmed if the assessments go down, so they're obviously invented to keep assessments high.

That said, it's good that Detroit understands its goals and is thinking of what levers are available.

The problem is that you need structures. A city full of vacant lots isn't worth anything, and if you force people to build they won't. Why build when your building will never be worth anything?