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Land and Property Taxation

Although the name may not be familiar to many Americans, the concept of a Land Value Tax (LVT) is not far removed from that of traditional property taxes.  And although in this country, applications of LVT are currently largely restricted to municipalities and school districts in Pennsylvania, this policy is used in a variety of places – ranging from Singapore to Australia – throughout the world.

So what is a land value tax?  The answer is simple, and we’ll use the model of more familiar American property taxes as the starting point for the explanation.

Traditional property taxes are based on the application of a single tax rate to the total value of an owner’s land and improvements (usually buildings, but this could also include things like grading and man-made drainage) as determined by a professional property assessor.  A Split-Rate Tax (SRT) is any instance in which the assessed values of land and improvements are taxed at different rates.  A “true LVT” is the farthest end of the split-rate spectrum, where the total tax burden falls on the assessed value of the land, leaving improvements untaxed (i.e. the tax rate on improvements is zero).

Despite the prevalence of traditional property tax structures in the United States, LVTs and SRTs can offer a number of distinct advantages to communities, tax payers, and the natural environment.  Check out the resources on this page to learn more about Land Value and Split-Rate tax structures.  And if you’d like to know whether one of these approaches might be right for your city or town, contact us for more information at [email protected].

Table one illustrates the differences between LVT, SRT, and a traditional property tax structure using a hypothetical property where improvements and land are each valued at $50K to illustrate this concept.  Importantly, the owner’s total tax bill is held constant (at $1,200 annually) throughout the analysis, both to illustrate the underlying concepts with maximum clarity, and because (from experience) CPTR generally recommends a revenue neutral shift away from traditional property taxes in real world settings.

The starting point for the example in Table 1 is a traditional property tax rate of .012, which on a property whose total value is $100,000 yields a $1,200 annual tax bill.  Under an LVT, the same tax obligation results from zeroing out the rate on improvements, and increasing the rate on land values to .024.  For this example, we’ve used a Split-Rate Tax where 25% of tax revenue is generated by taxing improvements and 75% from taxing land, an outcome achieved by applying a rate of .006 to assessed value of improvements and .018 to the value of the land.

Articles: Land Value Taxes

Land Value Taxes

Earth Rent: The Future of the Dutch Ground Lease System

After Amsterdam, Rotterdam is the largest Dutch municipality in terms of population. Since the 1970s, this municipality has given out almost all of its new land under ground lease conditions. One of the goals of the ground lease system was to allow the entire community to benefit from the increase in land value, instead of just the individual land owner.

In 2003, however, this objective was explicitly dismissed in Rotterdam. From then on, the increase in value of the land would no longer be collected by the community, but by the user of the land. So the council of mayor and aldermen judged, and probably not entirely coincidentally the first council since World War II without the social-democratic party PvdA. The idea was that individuals should be able to build up their own capital through land ownership and would thus develop a more intensive bond with their living environment. From that year on, private ownership of land became the new standard in Rotterdam and leasehold the exception.

In Amsterdam, too, a council without the social democrats took office in 2014, after the PvdA had been represented in the municipal council for more than a century. More than 125 years ago, Amsterdam had been the first Dutch municipality in which it was decided to issue all land under ground lease conditions. The municipality nowadays still owns about 80 percent of the land. And since its introduction in 1896, the original goal of allowing the increase in the value of land to benefit the community had never been changed.

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Land Value Taxes

From Eternal to Extinguished: The Reform of Municipal Ground Lease in the Netherlands

“On a Sunday afternoon, the city council of Amsterdam flushed 100 years of progressive policy down the drain,” says journalist Hans de Geus. “Melancholy, disappointment and a fighting spirit” prevail in the green progressive party (GroenLinks). “A historic blunder,” according to Marjolein Moorman, currently alderman for the social-democratic party (PvdA). The reactions to the most recent change in the Amsterdam ground lease system were quite severe. The tenor of these reactions was that in 2016, the system was so fundamentally changed that it was de facto abolished. In contrast, there was a euphoric mood among homeowners and right-wing parties. “It’s done,” tweeted a supporter of the liberal party (VVD) enthusiastically.

The system change had been a fervent wish of the liberals, who traditionally stand up for the interests of homeowners. Remarkable, because it had also been a liberal, alderman Treub, who had stood at the beginning of the Amsterdam ground lease system. By no longer selling municipal land, and instead giving it out on long lease, the municipality at the end of the 19th century wanted to get a grip on the uncontrolled growth of the city, stimulate the construction of houses, fight speculation, and make sure the growing value of the land would benefit the community, instead of the individual land owner.

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Land Value Taxes

The Dutch Ground Lease System from a Georgist Perspective

Seventeen years after the publication of Henry George’s Progress and Poverty, the city of Amsterdam decided not to sell any more of its land. Instead they installed a system of municipal ground lease, to ensure the community would benefit from the increased value of the land. The system has been hotly debated ever since, including by Georgists.

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Land Value Taxes

LVT on the Ballot in New Zealand

New Zealand is suffering many of the same ills that afflict American cities. Tenants facing ever-rising rents, young people and ethnic minorities being priced out of homeownership, widening inequality driven by soaring land values, sprawling cities and congested streets. A long and bitter debate that blamed land use regulations for these problems has largely been won by ‘YIMBYs’, with several waves of upzoning producing a budding building boom for townhouses and apartments. While there are some signs that rents may be easing as a result, these problems are far from solved, and public attention has begun to look for alternative solutions. 

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Articles: Property Taxes

Property Taxes

Who Says You Can’t Have a State Property Tax?

Well, okay. Lots of people. One of the crowning strategies to rouse the rabble is to ream the property tax. Fair enough. But in some states like New Jersey, the property tax is unpopular, likely because the property tax is just as high as the state income, business, and sales taxes.

But some states have a lifeline for tax efficiency, equity, and progressivity. Yet because we live in strange times, state governments get the shakes regarding property tax. So instead, they throw themselves upon regressive, volatile, or inefficient taxes. Not surprisingly, these taxes hit parts of society that are powerless or don’t vote.

The property tax can trace its unpopularity to simple (and fixable) quirks in most states: the bill comes due once a year. There are legitimate concerns over what happens to people on a fixed income. The house’s value may go up, but there’s no cash flow to pay for a tax bill that goes up.

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Property Taxes

Bias in Property Assessments: Sources and Solutions

So we’re left with these dual realities: the premise of property taxes is sound, but the execution is inequitable. And for us at the Center for Property Tax Reform this brings two questions immediately to mind: First, where does bias in property assessments come from? (After all, professional assessors’ primary objective is to create valuations that are “fair and equitable,” not for some property owners, but for all of them.) And second, recognizing that many current assessments fall short of meeting the fair and equitable standard, what can we do to fix them?

It was with these questions in mind that we created our “Bias in Assessments Handbook.” The Handbook combines an extensive literature review with data gathered through one-on-one interviews with professional assessors in some of the nation’s largest jurisdictions – assessors who have personally and professionally dedicated themselves to identifying and remedying regressivity and inequities in their jurisdictions’ assessments and can speak with authority about how to do it right.

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Property Taxes

Tax Exemption in Roanoke, Virginia

“Statutorily exempt” is the term used to describe owners of land and buildings who, by virtue of their identities, are not required to pay property taxes. Their holdings are still assessed like everyone else’s but no bill is ever generated, despite the fact that they benefit from the same tax-funded amenities (like schools, roads, and public services) as everyone else. So while an organization’s tax exempt status may feel like a foregone conclusion, their savings aren’t actually free. As part of its commitment to transparency in taxation, CPTR explores the specific implications of tax exemptions for cities and towns across the country. This report is focused on the City of Roanoke, VA.

In the State of Virginia, statutorily exempt owners include religious institutions; federal, state, and city entities; public parks and libraries; charities; and more. Using the City’s 2021 tax data, it’s possible to understand exactly how this plays out in Roanoke.

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Videos About LVT

Exploring LVT

View more than 28,000 vacant and underutilized parcels found throughout New York City.

From city council district to individual parcels, explore what a split rate tax could do for your city.

Frequently Asked Questions

Land Value Taxation (also known as split-rate property taxation, or two-tiered real property taxation, not just LVT) is a type of real property taxation. Whereas the typical property tax taxes land and improvements at the same rate, LVT applies to land at a higher rate while simultaneously reducing, or even eliminating, the tax on buildings.

For example, in Allegheny County, Pennsylvania, Clairton has levies at  103 mills on land and 4.32 mills on buildings rather than 29.5 mills on both (City and School District combined).

Traditional property taxes are calculated based on the assessed values of the improvements on a parcel, as well as the value of the land within its footprint.  These values can be determined by a number of means, including through comparisons with local property sales records, through computer-assisted approaches, as well as through more generalized formulas that take into account land uses.  Under a traditional property tax, a single rate is applied to the total value of the property (improvements + land).

A split rate tax simply imposes a different (higher) tax rate on the portion of a property’s overall value that comes from the land.

A true land value tax is levied on the assessed value of the land alone, and the value of improvements is untaxed.

Traditional property taxes are based on the assessed values of owners’ land and improvements (buildings), so those amounts are already known for every parcel currently on the tax rolls.  Whether a city adopts a split rate tax or a true land value tax, determining owners’ tax bills involves simple mathematical calculations based on the values of the existing property tax assessments.

Because a switch to a land tax will eliminate taxes on improvements, it’s not a foregone conclusion that a homeowner will see an increase in their overall tax bill, even if they live in an area with high land values.  In fact, residents rarely see their taxes go up as a result of LVT.  If, however, the introduction of LVT does raise taxes on these individuals, tools like tax deferrals or caps can be implemented to limit or eliminate the impact.  Many such tools already exist at the local and state levels, so there is no need to create new policy solutions in tandem with embracing a land tax.

This is because a land tax captures the value of the land, not the improvements, and identical, adjacent lots, no matter how differently they’ve been developed, will have very similar land values.

If, for example, two parcels are near a subway station, park, or major office complex, their owners have equal access to those amenities, and hence, those pieces of land are equally valuable. The fact that one owner has done nothing to take advantage of that access and another has made major investments that give the people on their property access to those benefits doesn’t make one owner’s land more valuable than the other.

Taxing land value alone “rewards” (or at least does not discourage) investments in buildings and other improvements, because owners know they will not see their tax bills go up as a result of those investments.  Popular abatement programs, designed to encourage construction by forestalling the onset of improvement taxes by years or even decades, operate on the same principle; however, unlike abatements that shift the tax burden to others and eventually end, leaving property owners to either lobby for further tax breaks or consider moving elsewhere to take advantage of new tax breaks, LVT ensures that taxes are paid fairly by all and never sunsets, encouraging long term investments in cities and towns.

In general, residents and small businesses see their tax bills go down under LVT.  As a rule, land speculators see their taxes go up.

Why is this? Because traditional property taxes place the bulk of the tax burden on improvements, the highest bills go to properties with the biggest, most expensive buildings (unless the owners were able to negotiate a tax abatement as a development sweetener, that is). If you were to create a “heatmap” of a city’s tax bills, it would likely be patchy – showing hotspots in areas with big office and commercial developments and fancy homes, wherever they are in the city. A land value tax, in contrast, emphasizes the value of the land under the buildings, so properties in areas with the most community amenities (i.e. the most desirable places to live and work) would receive the highest tax bills.

In general, downtowns are the bustling areas of a city or town, with a concentration of shopping, jobs, transportation, and entertainment options. All of these community-generated amenities make this land the most valuable. What housing there is downtown is often in the form of residential over commercial mixed use and apartment buildings, which claim little land area. Land in downtowns is at a premium, and if improvements are taxed more than land value, it creates the perverse incentive to hold downtown land in a blighted or idle state, in the hopes of one day selling high.

In contrast, land-intensive developments, like neighborhoods of single family homes, office parks, and farms, are typically farther flung, because that’s where land is readily available. And unsurprisingly, land values on the periphery are lower because the community has less to offer there.

So if you were to reimagine that heatmap, this time under a land value tax, the hotspots would shift to the most amenity-filled areas.  Downtown land near parks, public transportation, job centers, and entertainment, would be taxed highest; and land far from the city center, and farther from these amenities, would be taxed least.

Since residents in downtowns live on little land, their bills are largely unaffected, and because those on the periphery live on less valuable land, their bills also typically stay the same or decrease. In contrast, downtown speculators see their bills skyrocket, and are left with the choice to either improve their land to make their holdings profitable, sell to someone committed to making those investments, or pay full board for the privilege of holding their land out of use.

The natural characteristics of land contribute to its value, but the primary determinant of whether a property is valuable or not is what it gives its owner access to. We all implicitly understand that the most valuable properties are the ones near jobs, entertainment, and transportation; the ones characterized by good public safety, and that give their owners access to things like good public schools. Clearly, the property owners didn’t create those amenities, but their proximity to them is a huge advantage, and it’s capitalized into the value of their land.

Skeptical? Imagine a scenario in which a new subway line is sited. What happens to the value of the land near the newly constructed stops? It skyrockets. A subway is an investment of public money, but under improvement-focused traditional property taxes, the people who reap the financial benefits of that investment are the local private landowners, whose bills increase only slightly (if at all), but whose properties are now worth much more than they were before the infusion of tax dollars next door.

A land tax closes that loop. If a subway line is sited, the value of adjacent parcels still increases, but the owners of those properties see their tax bills go up as a result. Of course, policies such as tax deferrals or phase-ins can be put in place to dampen the immediate effects of those increases, but ultimately, taxing land value means that owners pay what’s fair for the right to be in a particular place and enjoy the particular set of community-provided benefits it affords them, to the exclusion of others.

Case studies show that LVT does not pressure the development of areas designated open space or preserved as parkland. Zoning changes will ensure protection for these from development, along with existing tools such as TDRs and establishing non-taxed parkland. Also, by encouraging growth in urban areas that are already developed, LVT makes it less attractive for developers to seek land in rural areas to build on. A developer in an urban or inner-ring suburban core may take advantage of the need to use less land and establish community “pocket parks,” raising the inherent neighboring land value and capitalizing the project into a fairer selling price.