by Frank de Jong
Ontario, Canada
Developers usually get the blame for the horrendous
suburban sprawl that has characterized development for the
last 50 years. But this is only scape goating. There is a
deeper problem better able to explain how land use went so
terribly wrong.
Developers are not ideologically or genetically
pre-disposed to turning cornfields into suburbs and malls.
They would just as happily make their living doing infill,
renovating run-down buildings in the city core, or building
pedestrian-friendly communities. But for planning ideas
like these to be attractive to developers, they have to be
backed up by appropriate economic signals.
The current structure of our property tax system
sends the wrong signals. Generally speaking,
municipalities calculate property taxes based on the value
of the land and the buildings sitting on them. This means
that anyone who builds on a vacant site in an existing
urban area or renovates an abandoned building back to
health pays more taxes than if they just left the land or
building vacant. This is a tax on smart growth. And it's
not smart.
That tax structure fuels the land speculation
that drives sprawl. On the outskirts of cities, cheap land
gets snapped up by speculators who then wait for the
suburbs to move closer, driving up land values. When that
happens, the speculator then sells the land to a developer,
who puts up buildings quickly and cheaply to maximize
profit -- creating unimaginative and inefficient suburbs
rather than livable communities.
At the city core, speculation works the other way
around. Speculators buy run-down properties and
deliberately keep them in poor condition, further driving
down community property values. If speculators don't
receive lower assessments from a city for their neglected
buildings, they demolish them. These underused lots deprive
cities of much-needed tax revenue. [Run-down or abandoned buildings are also fire hazards, and trash-strewn lots are a haven for drug sales.]
Instead, we should allow market mechanisms to curb
sprawl by shifting property taxes off buildings and onto
land. If buildings were taxed lightly or not at all and
land taxed more heavily, building sprawl would become more
expensive than building infill. The invisible hand of the
market would do the rest:
- the amount of affordable housing available would
increase, even without involving subsidies, since builders
could avoid higher land costs by building efficiently on
small lots (row houses, low-rise, semi-detached);
- housing stock and rental units would improve
since renovations, additions and other improvements would
not incur increased taxation while adding rental and resale
value to property;
- the amount of vacant land, parking lots and other
urban land uses that bring in minimal revenue would be
reduced since property owners would be able to develop this
land without tax penalty; and
- suburban sprawl would decline since servicing new
developments would incur high land taxes whereas higher
density infill would avoid taxation.
Municipalities could gradually make the shift to a
land- or site-based tax. Assessors would, as now, continue
to appraise buildings independently of the land they are
built upon. And zoning for various types of land use would
remain unchanged. However, city hall would set one tax
rate for buildings and another for land. Over the years,
the rate for buildings would be reduced and the rate for
land increased to make up the difference. The shift could
be partial or entire, depending on how seriously the
municipality wished to reduce sprawl. This tax "split and
shift" is meant to be revenue-neutral: overall taxes for
the average residential property owner would not increase
or decrease.
Frank de Jong is the leader of the Green Party of
Ontario, www.greenparty.on.ca; office phone
416-929-2397. He may be emailed at
fdejong@greenparty.on.ca