AVI Makes It Even Cheaper to Be a Blighted Vacant Lot Owner

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As Dean Baker wrote yesterday, raising the cost of holding vacant land and properties pushes down land prices and rents, and increases real wages.

Making it cheaper to hold vacant land and blighted properties off the market does the opposite – inflating rents and depressing wages.

So I think it’s a huge problem that Philly’s reassessment will give a tax break to vacant land owners. Add to that the fact that land appears to have been systematically underassessed and you’re looking at a nice reward for owners of vacant lots, surface parking lots and blighted properties. Good job guys keep it up!

I still haven’t heard a satisfactory explanation for why so many of these vacant lots have been assessed at well below their recent selling prices, but even with the inaccurate values, this disturbing gift to the city’s worst property owners can be corrected by shifting the property tax burden onto land.

To learn more, head over to AxisPhilly to read my plan for replacing the perenially-embattled 10-year tax abatement for property improvements with a more politically-durable land value tax:

As Isaiah has been pointing out, this will make it even cheaper for speculators to hold land off the market in growing areas, not building anything as they wait for ever-higher rents. This preferential tax treatment of land over buildings rewards blight and vacancy, and is a key contributor to rent inflation in gentrifying areas of the city.

What if this tax preference was reversed? What if Philadelphia taxed vacant land at a higher rate than buildings?

The effect would be to extend the building tax abatement to all buildings, new and old alike. And not just for 10 years, but forever. On the flip side, a greater share of the tax burden would be shifted onto vacant and unimproved land in the areas where land is in highest demand.

Taxing land instead of buildings would achieve exactly the same goal as the 10-year tax abatement – lowering overhead for new construction and improvements to existing buildings – but without the stench of unfairness dogging the current approach.

The higher tax on land would also reign in land price inflation in gentrifying neighborhoods by raising the cost of holding properties vacant, especially in areas closest to center city and public amenities like transit stations. Vacant property owners would face increased financial pressure to reduce their asking prices and find tenants quickly. This would put downward pressure on land prices and rents – the key input in housing costs. According to a pre-AVI analysis by the Center for the Study of Economics, shifting the property tax burden onto land would also reduce the property tax burden for majorities of residents in every Councilmanic district.

As economist Dean Baker has pointed out, the impact of falling land prices is distributionally progressive. While many of the people who would be impacted by falling land prices aren’t wealthy, property owners as a group are better off than people who don’t own property, and the reduction in rents and property tax bills would translate into a real wage increase for most Philadelphians. A reduction in housing costs, and the cost of rent as an input for the production of goods and services, would leave most people with more disposable income to spend or save as they please.

This entry was posted in Miscellany.

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