Taxing buildings less and land more in Ohio would encourage development such as more housing, and most of the benefits would flow to people who need them most, like renters in low-income neighborhoods.
That’s the conclusion of a study of Cincinnati that was made public last week.
The study by the University of Notre Dame’s Student Policy Network in conjunction with the Center for Land Economics used data from the Hamilton County Auditor’s office to simulate the effects of a specific kind of “land-value tax.”
It would tax land at four times the rate of the buildings and other improvements on it. Currently, valuations of land and improvements are added together and taxed.
The goal of a land-value tax is to create a financial incentive to develop unused or underused land in otherwise developed neighborhoods. The tax mix would be different, but it would provide the city with the same revenue it’s getting currently.
Most Ohio economists appear to think it’s a good idea.
Ohio state Sen. Louis Blessing III, R-Colerain Township, is proposing a constitutional amendment that would allow Ohio communities to opt into a version of a land-value tax.
The researchers found that Cincinnati has more than $1.87 billion in vacant or underdeveloped land, and they found some striking incongruities.
For example, a low-income apartment building in the hip Over the Rhine neighborhood is taxed at 22 times the rate of the parking lot next door.
“When we went parcel by parcel through Cincinnati’s assessor data, the pattern was impossible to miss,” Curtis Brashaw, co-leader of the student team, said in a written statement accompanying the report. “A downtown lot worth millions can pay less tax per square foot than the apartment building next to it.”
The principle behind a land-value tax is straightforward. Taxing land at a greater rate than improvements makes development more financially attractive. And particularly in urban areas, that discourages a gap-toothed landscape in which prime land is underused.
“When a property owner chooses to improve their land, whether by constructing a new apartment building or renovating a deteriorating structure, the tax bill rises as a direct result,” the report said. “In this way, the tax code treats investment as a liability rather than an asset, discouraging development. Over time, this creates a financial disincentive for development that contributes directly to vacant lots, surface parking, and urban blight. We tax the wrong thing.”
Changing the tax mix would create winners and losers.
Under the student group’s simulation, median taxes on vacant land would increase 126%. And median retail and commercial property taxes would increase 39% — largely because land with that zoning and in those locations is valuable.
On the other side of the coin, homeowners and apartment dwellers would benefit. The median single-family home would see a 10% drop in property taxes, while taxes on multi-family units would decrease more than 16%.
The study also found that the biggest benefits flow to those who need them most.
“The burden shifts progressively,” it said. “The lowest-income neighborhoods see median cuts near 17% and middle-income neighborhoods 10% to 11%, while only the highest-income quintile sees a median increase of about 11%.”
In places where a land-value tax has been implemented, there’s some evidence that it helped the overall economy. For example, Allentown, Pa., implemented such a scheme in 1996.
Tax cuts flowed to nearly 75% of properties and building permits increased by 32%, the Strong Towns Archive quoted former U.S. Sen. Pat Toomey, R-Pa., as saying. The Notre Dame students’ report said that new development in Allentown far outstripped that in nearby communities such as Bethlehem.
Blessing, the Ohio state senator promoting a land-value tax option, said the new report helps prove his case that it’s a smart idea.
“This is exactly the kind of evidence Ohioans deserve as we look for real answers on property taxes,” the report quoted Blessing as saying. “This amendment doesn’t impose anything on anyone. It simply gives communities the option to stop penalizing the families and businesses who improve their property. This report shows Cincinnati what that choice could look like, and I believe Ohio’s voters should be the ones to make it.”
This story is republished from the Ohio Capital Journal under a Creative Commons license. View the original article.
