Altoona Becomes First US City WIth a Real Land Value Tax

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Awesome news! Take note PA Cities of the Third Class:

City Council voted to adopt “land value tax” in 2002, on the urging of The Center for the Study of Economics in Philadelphia, whose president, Joshua Vincent, had made a presentation the year before.

Land value tax shifts the basis for property tax to assessed value of land and away from assessed value of buildings. It’s designed to encourage development and discourage speculative hoarding of ground.

While 16 cities and two school districts in Pennsylvania use land value tax, Altoona this year became the first municipality in the country to go as far as to rely on land value alone.

Council introduced the practice with a 20-percent shift toward taxing on land alone, followed by successive annual shifts of 10 percent, until the transformation was complete.

As William Kibler notes, the evidence of the impact from the tax change has been mixed, although several factors may be muddying the incentive effects.

Blair County’s assessments are out of date, and the Altoona Area School District – the largest tax bill landowners have – hasn’t adopted LVT. In PA, only school districts that are coterminous with a 3rd class city are allowed to tax land at a higher rate than buildings. The Altoona Area School District is not exactly coterminous with the boundaries of the city of Altoona, so they’re not allowed. PA really needs a state enabling law to allow any school district to adopt a split-rate property tax.

Regular assessments are also very important with LVT, because you’re no longer getting revenue from new building construction. Under LVT, the way your tax base grows is that more infill construction in the downtown makes the downtown land more valuable, and you realize those land value gains when you reassess. If you don’t assess regularly, you’re not going to capture that land value growth. Altoona also seems to have learned the lesson that overly prescriptive zoning rules limiting infill construction opportunities on small lots defeat the purpose of LVT.

The other issue is that housing developers are not exactly beating down the door to build in Altoona. A more development-friendly tax code should make them a more attractive location to build than similar cities in the region, but the places that could really use LVT are cities like Philadelphia and Pittsburgh, or smaller growing cities like Bethlehem and Easton, where people really want to build more mixed-use infill projects, but the high taxes on building construction are imposing some deadweight loss on new residential investment. I’ve argued elsewhere that Philadelphia should replace its 10-year tax abatement on new construction with a land value tax.

This entry was posted in Miscellany.

4 Responses to Altoona Becomes First US City WIth a Real Land Value Tax

  1. Sounds like great news! I’m excited to see how it ultimately turns out. One question though: does this shift apply equally to commercial and residential land? While I find the pro-development/anti-speculation effects of an LVT really appealing, I do worry about adjacent homes on similar lots being assessed exactly the same property taxes, even when one home might be three stories and 2,500 square feet and the other is one story and 1,000 square feet. I don’t believe your average homeowner should be unduly punished for not using their land to its most productive use. Is the LVT across the board, or more targeted?

    • Jon Geeting says:

      PA has a “uniformity clause” for taxes that is very strictly and stupidly interpreted to mean equal tax rates for residential and commercial property. I hear what you’re saying about the fairness issue with adjacent homes, but consider the case of multi-family buildings vs single family homes. A multifamily building would normally pay a higher tax rate than a single family home in a downtown under the regular property tax system. But with LVT, the more you subdivide the property into more housing units, the bigger a tax break you get. That’s good for the poorest people of all – the renters. That seems like the bigger equity issue to me.

    • Logan Boettcher says:

      “I don’t believe your average homeowner should be unduly punished for not using their land to its most productive use.”

      Shane, they are not being punished, they are paying the market value of the consumption of land services. It is like any other consumption good. If they truly have the same value of land, then they should pay the same, just as if they had the same value of cell phone or cable TV service. If someone doesn’t like paying so much for cell service, drop text messaging; for cable TV, get the less expensive package. Likewise, if someone doesn’t like paying so much for the quality of land they are consuming, they should move to land that fits their needs better. People who rent are forced to downsize their living situations all the time when better infrastructure or private infill raises their rents above their ability to pay, so all that an LVT does is enforce that same user-pays principle on owners as well. This is eminently fair.

      Furthermore, an LVT should be coupled with a citizen’s dividend (paid out of land revenues) because part of the value of land is due to the very existence of other people vying for use of the land. This means that the person who is forced to downsize because of a too high land services bill will have a dividend check that is approximately the value of an average plot of land. And downsizing will mean they will have more money left over from their dividend to enjoy as they please. All in all, it would all balance out, as those who preferred more land services would consume above their dividend to obtain preferred land, and those who didn’t get preferred sites would be compensated for not having access to those preferred sites.

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