By Alex Burns and Rich Nymoen | 02/10/2020
Creating sustainable land use involves more than just planning. It also requires incentives. That’s why the North Star Chapter of the Sierra Club has joined with the Minnesota chapter of Common Ground USA to support state legislation that allows towns to create Land Value Tax (LVT) Districts.
The current property tax system taxes the total value of properties. This includes both the land and any structures on top of it. Because the average property has most of its value in the building, the conventional property tax is mostly a tax on building value.
This creates perverse incentives for speculators to buy up vacant and underused sites and to avoid building intensive uses. For the speculator, as long as annual holding costs are lower than the site’s annual appreciation in value, it pays to hold out. For those who want to make the most of the site, the more building value they create, the more they pay in property taxes.
As a result, a significant portion of land in cities, particularly near downtown areas, remains locked up as surface parking lots or other low-intensity uses. This has big environmental implications. Dense, high-intensity land use promotes sustainable transportation habits by making it easier to walk, bike, and take transit. It also limits urban sprawl and the resulting loss of habitat by concentrating development in existing urbanized areas.