Aside from the immediate tax relief benefits of switching to land value tax, the other key benefit of taxing land value is that it’ll moderate tax increases in the future. Remember, Actual Value Initiative really does mean actual value. As land prices in gentrifying areas keep going up, so will the property taxes in those areas, since the assessments will be kept up to date:
Assuming there is no large upswing or decline in the overall market, he expects assessments to be relatively stable – except in rapidly changing neighborhoods with a lot of real-estate activity that could lead to increased assessments.
Councilman Mark Squilla’s district, which stretches from South Philly to Kensington, contains many gentrifying areas that will be hit hard in 2014. Continued increases, he said, could have a chilling effect on those hot areas.
“That’ll weigh on [potential buyers'] decision – absolutely,” he said. “There is a chance probably that the value of the home will go down if they keep doing this.”
Last year, Mayor Nutter and Council agreed to make AVI’s first year revenue-neutral to emphasize that the program is about fairness, and not just a way to bring in more money. So this spring, Council will set a property-tax rate that is intended to capture the same revenue next year as the city collects this year.
One big source of increasing rents in gentrifying neighborhoods though is land speculation. People who own vacant lots in growing neighborhoods don’t want to sell at today’s price. They want to hold the land off the market, and wait for a better price in the future, since everybody expects the land values to keep going up. They’re basically bidding up the price of the land.
But if the city starts taxing land value instead of building value, then vacant lot owners will be in for big tax increases, and people who own buildings that occupy most of the lot will have much smaller tax increases. The vacant lot owners will need to build buildings sooner, in order to create a revenue stream to pay the taxes. As more buildings come on the city tax rolls, the property tax burden will be spread across more properties, lowering the amount each individual needs to pay.
Instead of the chilling effect Councilman Squilla fears, rising land prices and land taxes would set off more new construction. As land prices rise, the tax on waiting to build will also go higher.
(via Sean Collins Walsh)