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Private Sector Redevelopment
Unused land is far more abundant than we realize.
We utilize less than 5% of the total land area in the United States for urban purposes, including housing, commerce, and manufacturing. As you fly across the country all you see is farm, timber, desert and an occasional small community. While less than 5% of our nation's land area is needed for urban purposes, much vacant land within existing cities is bypassed because it is cheaper to build further out than pay the high prices demanded for the more efficient, better located, land. The result is urban sprawl. Why do we choose to utilize land distant from employment, social, and civic needs while bypassing superior land? Why do many of us choose to spend two hours each day commuting to work? Why do our older cities fail to renew or rebuild obsolete buildings? Sprawl is not just about the density of land use. In many cities only one half of the land is devoted to housing and commercial uses while the other half is vacant or under-improved. Could it be that there are inefficient requirements built into some public policies? Smart growth should not be constrained by archaic patterns that impede or misappropriate free and open urban land usage. Local ordinances and practices within cities that force accelerated suburban sprawl should be abolished. We don't need more regulation, we need greater freedom to act responsibly. Individuals should have the opportunity to decide whether they want to live in the suburbs or in the city. This should not be a coerced decision because of a public policy that impedes growth within the city. Simple tax reform can help to achieve some of the goals and objectives of smart growth without government intervention and wasteful subsidies.
Counterproductive growth limitations and regulations should be abolished.
Property taxes should not be levied on new construction or existing improvements, when the revenue needed could be obtained from the land values created and maintained by the community.
The property tax could be shifted to reduce the incentives for sprawl. If the property tax were taken off urban buildings and focused on the land itself, this would penalize land speculation and would reward people who build on their land. Thus land speculation, which promotes a "leap frog" development out of the city and into the surrounding countryside, would decrease. The proposed shift from traditional property tax to a "land value tax" would penalize land speculation and encourage urban redevelopment. Removing the tax on buildings makes them cheaper to construct, renovate and operate, and more affordable to buy or rent. Urban construction creates urban jobs. Capital and labor both benefit.
A Strategy for Urban Renewal
Established cities could adopt some very practical long-term measures that will make the city a place where people can and will want to live, work, and play in safety. What few city leaders understand is the destructive role that taxation has played in the out-migration of people and business.
What is needed is a continuously self-renewing city and a public policy that can work effectively. Buildings have a limited useful life. Continuous maintenance and frequent retrofitting sometimes extends this life span. Other buildings reach a point where they should be replaced. Some buildings sit vacant for decades even in the city's central business district. Valuable parcels of land are left undeveloped or paved over and used as surface parking lots. The result is a lower tax base and an eyesore.
As urban buildings deteriorate, owners often don't renovate, remodel or make repairs because their property tax may rise. Thus the typical property tax creates suburban sprawl and urban decay. Shifting the property tax off buildings and onto land reverses these processes. Taxing land more than buildings usually reduces taxes for homeowners.
One means that has long been available but not brought into general use is to exempt buildings from the real estate tax and begin to impose an annual tax on land sites that makes holding land off the market for speculation a costly proposition. ...
... As the city begins to renew itself -- as property owners are no longer penalized when they renovate or build new structures -- businesses and people will increasingly see the city as a more desirable place and not just in a few neighborhoods that now benefit by abatement programs and public subsidies.
Exempting property improvements from taxation and collecting all of the property tax from land values (which are created by the community as a whole and not by individuals) is the cornerstone to continuous self-renewal and the reduction of urban sprawl.
The ideal public policy would be to reduce taxes on production and commerce and raise public revenue from non-distorting revenue sources.
That non-distorting revenue source is land and natural resources. The central problem which limits the operational success of the economy is the failure to procure the public value which is created by the community.
This value ought to be reserved for the community to pay for public improvements. However, this value is to a large extent diverted into private pockets by speculation in land and natural resource values. The correct approach is to create a system in which no-one, except the citizenry as a whole, is rewarded by the collection of publicly created values.
Economists can agree that the
economically efficient public
finance system is one in which revenue is drawn from the rent that
people pay for the use of land and natural resources. These payments
do not distort economic activity. Land rent, because it is pure
surplus, could be taken and used for any purpose and there would be
no negative consequences for the allocation of labor and capital, or
in the use of land and natural resources. If this surplus is invested
in needed infrastructure and other public services, it will in turn
increase land values for future public investment. ... Read the
Wyn Achenbaum: Eminent Domain and Government Giveaways
It seems to me that there are better ways than eminent domain to provide the incentives that will lead the private sector to develop choice land. ...
While at one time this area might have been an appropriate place for a neighborhood of single family homes, it appeared to me that that time had passed a decade or so ago. It seemed to me that the path of progress would -- if the incentives were logical and the market responsive to signals -- have caused the private sector to have redeveloped that site. Such re-development might have been painful to the residents of the neighborhood, but would have put now-choice land to a higher and better use than single-family homes.
But our system wasn't designed to send signals all that well -- Connecticut law required properties to be reassessed once every decade (and I've heard that once in early '70s and once in the late 80's was construed to satisfy that requirement). ...
But if the properties had been reassessed on a regular basis, with market-based values assigned first to the land and the residual being assigned to the existing buildings, the homeowners themselves would have been in a position to make their own rational decisions on whether it was worth it to them to continue to occupy extremely valuable land (and pay the taxes on it), or more to their advantage to accept an offer from someone who was prepared to put it to a higher and better use, and take that equity and buy elsewhere. ...
Most of us know of an older home, or perhaps a diner, or something else that was a highly appropriate use for its site -- and typical of the neighborhood -- 50 years ago, which stubbornly remains in the middle of a neighborhood which has been redeveloped with taller commercial buildings. The home or diner is something everyone else has to walk around, drive around. If that site were well developed, it could prevent the premature development of far less desirable sites on the fringe of town -- an acre downtown well developed, can save 10 or so acres on the fringe. ...
But unless the properties are regularly and correctly assessed, land first and buildings as the residual, we won't have the signals which tell us when it might be time to move on.
In the absence of such a system of regular revaluations and a property tax which is concentrated on land values rather than equally on land and buildings, New London turned to eminent domain. But eminent domain is not the problem here. Lack of appropriate signals is the problem. ...
Our land, particularly the best-located land, is a common asset on which we are all dependent. Allowing individuals or corporations to occupy it without compensating the rest of us for its value is the underlying problem, and solving that problem through good assessment and rational (that is, land value) taxes is the way to solve it. When we do that, a lot of problems will begin to fall away. read the entire article
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper