The concept originally was predicated on the correlation of landholdings with personal wealth, so was thought to be progressive as a tax policy. Over time it morphed into a thesis that taxes on land would also discourage speculative holding of vacant property, driving owners toward the highest and best uses of their real estate by making physical improvements effectively tax free. It’s an idea that has most prominently resurfaced in Detroit, home of vast swaths of derelict property, much of it owned by speculators hoping to profit from a Motor City economic revival.
The problem for today’s Georgists is that property tax laws and modern urban land-use patterns have long ago outgrown the original idea. Shifting the tax burden in most urbanized areas from the value of improvements to the value of land would essentially grant a windfall to high-rise developers, big-box retail operators, builders, real estate partnerships and landlords — at the expense of middle-class homeowners.
It’s not just about urban property: Farmers who now enjoy special tax treatment for agricultural uses of their large tracts would be outraged by a land value tax. Yet a case could be made that in most rural counties the old Georgist concept has come full circle because land is once again a correlate of wealth: Most farmland is now inherited, and ownership has become dynastic in farm country. Arguably any land-use zoning for agricultural uses only would facilitate a valuation differential, but properties on the fringe of town would vex the assessors. And it’s hard to imagine a scenario in which the “townies” in rural America’s heartland would rise up to demand a countywide property tax shift to burden the neighboring farmers.
Then we have the problem of the nation’s crazy quilt of property tax laws and limitations such as California’s Proposition 13, which essentially freezes the assessment value of property at the time of purchase, with a modest inflation kicker. Putting aside the political unlikelihood of a statewide constitutional amendment to overlay a land-value tax on this system, it’s almost impossible to imagine the financial disruption this would cause to both retirees and vested businesses that would bear much of the brunt of such a shift. Similar tax preferences in other states would be jeopardized in much the same way.
But despite all these objections and political realities, there is some merit to the idea that modern property tax policies should find a way to encourage desirable development where free-market forces have failed. The Georgists’ wealth inequality issues are probably impossible to address with a simple land value tax concept, but there might be a variation on this theme that could work as a practical matter of land-use policy. If the idea is to ever succeed in some realistic and modified form, the property tax reformers will need to start with the problem and not a grandiose solution.
21st-Century Strategies
One of the conventional political approaches to housing shortages has been tax abatements for multifamily housing. A tax abatement for apartments would be a corollary or substitute for land-value tax benefits. As New York City policymakers have learned, however, that strategy can backfire fiscally. In recent years, there’s been a surge in construction of apartment buildings (often financed with cheap, pre-COVID money) that are now coming online. As rents are just now declining a little nationwide, the overheated politics of apartment tax abatement may simmer down. Other cities have tried various tax incentives with mixed results.
So let’s start with areas where actual development could possibly be promoted with a local property tax or surtax that could spur highest and best uses of underdeveloped property. The first use cases could be oversized suburban and exurban residential lots that are larger than functionally required for single-family homes. Such a surtax could also apply to larger vacant tracts in urbanized communities where homebuilders typically acquire development rights through option contracts with landholders rather than buying large parcels to hold in costly inventories that require balance sheet risks that bankers and corporate investors hate.
In places where residential development has already consumed the majority of buildable land, there are efforts — some of them already deemed insufficient — to promote higher-density land use, including zoning revisions that allow a second house or multifamily units to be built on larger lots in single-family zoning districts.
With such carrots for development, a land-value surtax would arguably be the stick that prods owners to stop hoarding the ground around them. It’s a nice theory, but not likely to win a lot of friends at city council meetings. Like unborn children, future residents have no vote in local elections, so any policy changes along this line would usually have to be imposed downward from the state or county level over the objections of homeowners — a really tough political sell.
Home-Rule Options
Far easier to envision would be a home-rule “vacant property surtax” law that applies only to designated parcels in communities that declare themselves to be underhoused. In this model, something like a doubling of the land assessment on the property tax bill would have to be required as a matter of state law, to be invoked only by municipalities that proclaim a need for higher housing density. Alternatively, a statewide policy could establish some kind of arbitrary statistical measure of “housing shortage” to authorize such a surtax regime without a local declaration, but that arguably smacks of Big Brother instead of home rule.
Either way, the additional revenue to fund municipal and school operations would be negligible, so this would not be so much a fiscal policy as a land-use prod. In most states, this kind of tax law would require special legislation, and it takes little imagination to expect the anti-tax lobby to fight this fiercely, its campaigns bankrolled by big metropolitan landowners.
A variation of this home-rule surtax concept could apply in center cities with urban blight problems where large areas of abandoned houses and vacant lots lie in wait of eventual redevelopment — land increasingly owned by real estate speculators counting on the intrinsic future value of property and holding out for longer-term price appreciation (as the 1914 billboard shown above complained).
This is closer to the argument of Detroit Mayor Mike Duggan, who is keenly focused on how to spur redevelopment of the city’s blighted real estate. A targeted blighted-property surtax would focus only on those absentee owners, add some needed revenue to the city’s treasury and leave the rest of the city’s property owners to carry on without an additional tax burden.
Those who would be inclined to try such interventionist approaches to land use and property taxation will be wise to first study the history of Georgism, how it initially promoted the widespread use of property taxes for funding county and municipal budgets, and the various reasons it then failed to become the dominant form of local assessment policies. To quote H.L. Mencken, unless the idea can be adapted to the modern age this may be a case where “for every complex problem there is a solution that is clear, simple and wrong.”
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
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