What's a Land Value Tax? Could it Be Right for Durham?

To start, file this blog post under "probably not going to happen within the next decade". However, I believe it is important to explore ideas so that Durham can eventually be on the forefront of good policy instead of playing catchup (we don't need to be first, just toward the front of the pack).

Some urbanists focus on the concept of "land banking", or holding land as an empty lot, parking lot, or underutilized building (e.g. a teardown house) with the idea that someday it will be worth more (certainly true for many areas of Durham). The problem is that we desperately need new housing and other development, but it is more profitable for land owners to hold on to vacant land, or vacant houses instead of building something new or selling the land to someone who will.

I was recently listening to an episode of the podcast, "Upzoned" where I was reminded about the idea of a land value tax. The idea is one that I learn about and then tend to forget about, just because of the lack of traction and discussion it gets. However, I thought co-host Chuck Marohn did a great job explaining what a land value tax (LVT) is. For those that want to listen, you can find it here (the land value tax explanation starts at the 18 minute and 15 second mark).

For those that would rather read, I have taken the liberty of transcribing the explanation here (I hope and imagine that StrongTowns does not mind as I am giving them credit):

Chuck Marohn (talking to podcast host Abby Kinney): Let's say that you and me and a land speculator own three properties next to each other. You and I have houses and are paying $1,000 a year in taxes each to the city and the land speculator in between us owns a vacant lot and is paying $100 a year in taxes to the city. So, they got a really good deal because they have the same amount of [public] infrastructure as we do. They have the same amount of maintenance cost to the community. It's not like the community plows 10% of the street in front of their house and 100% of the street in front of ours. The costs are the same. So essentially, you and I are subsidizing this lot in between us. That's a really good deal for them and it works out from a business model standpoint. They can buy that lot. They can hold onto it for a very low annual holding cost for a very long time


Let's say that our city then decides to switch to a land value tax. You and I would see our taxes go from $1,000 a year (I'm just going to pull numbers, but it's all proportional just to show [the effect]) to $800 a year. That would be really nice. We would like that. But a 20% reduction in taxes? That's not something you and I would go to city hall and fight for. The guy next to us, his taxes are going to go from $100 a year to $800 a year [to match] ours. He is going to have an 800% increase in his taxes. That person is going to show up and fight. That person is generally well-connected. They have attorneys. They are savvy in terms of investment. They know more than you and I do about how to get things done at city hall.

This explanation makes a lot of sense to me overall. Speculators have a low cost of ownership and can avoid developing or selling for many years. Vacant lots stay vacant. Dilapidated houses stay dilapidated. Lots perfect for urban infill, lie fallow. The LVT comes in and saves the day with a disincentive to sit on land for a long time.

However, there may be unintended consequences. For example, the Durham Unified Development Ordinance is complex. I can't tell you how many pages it is because I can't find a PDF version, only a searchable version that has to be hosted on the site "municiple.codes", which helps cities create a user-friendly version of their long, complex UDOs.

In addition, getting a project through rezoning, planning commission, a city council vote, not to mention permit applications and all other entitlements takes a long time. The whole process can take well over a year. If Durham decided to implement a LVT without fixing the entitlement process first, local landowners would be stuck paying high taxes without being able to build something that generates income for a LONG time. The solution would be to sell to someone with deeper pockets.

Instead of more local development, we might get more development from large, out-of-state developers that are incentivized to put up a cookie-cutter project as quickly as possible. I'd rather have a local developer taking the time to do something that benefits the community.

That is just one potential unintended consequence. I love the idea of pushing people towards using vacant land to benefit the community, but I am still on the fence as to whether an LVT is the right mechanism for accomplishing that. At the very least, I would think some other changes to the development process and easy paths for local developers need to come first.

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