Detroit Eyeing Land-Value Tax to Spur Development
Owners of vacant land would see tax jump, tax on homes, buildings would drop.
City officials in Detroit are considering a proposal to adopt a land-value tax, a measure that would significantly raise taxes on vacant land while giving building owners, including homeowners, a tax break.
Detroit currently calculates property taxes as most US municipalities do it: by making assessments of the value of a property’s land and the buildings on it, charging a fixed percentage each year.
According to a report in the Wall Street Journal, city officials in Detroit are pushing to switch to a two-tiered system that assesses a land-value tax (LVT)—based solely on the land value of the property—and a separate tax assessment for buildings and homes.
Currently, municipal tax systems with higher rates on land than on buildings are only in effect in a few cities in Pennsylvania, where they were popular in the late 19th century. Pittsburgh was the largest city to adopt an LVT—in 1913—but got rid of it in 2001 after a backlash from property owners against land value reassessments.
Proponents of the measure say increasing taxes on vacant property will induce owners to develop vacant lots, while decreasing taxes on homes and commercial buildings will push up the values of those properties.
If Detroit becomes the largest city to switch to a land-value tax system, supporters say, Motown could serve as a model for other distressed cities in the Rust Belt.
“This is a policy that works in any city in Michigan and works in a lot of distressed cities in a similar way,” Nick Allen, a former manager of the Detroit Economic Growth Corp., who supports the tax change, told WSJ.
Allen co-authored a study that estimates that 96% of homes and small rental buildings in Detroit would see their property tax bills fall if the land-value tax is adopted.
In 2013, after decades of declining population and a corresponding decline in its tax base, Detroit filed for the largest municipal bankruptcy in US history.
Motown is filled with vacant lots, many of which have been acquired by investors who are waiting for prices to rise before they break ground for new developments. A glut of abandoned houses at one point had the city auctioning off old homes for as little as $10k each.
In order to be adopted, a land-value tax would first need to be approved by the state legislature and then get the green light from a majority of Detroit voters in a citywide referendum.
Detroit Mayor Mike Duggan and Joe Tate, speaker of Michigan’s house of representatives, support the proposed tax change.