Bacon's Rebellion

Democracy Thrives in Sunlight

A New Tax Regime for Downtown Richmond!

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by

James A. Bacon
in

Wow, there is some really great “land use” and community-development commentary coming out of Richmond blogs these days. The latest is a post by Ambivalent Richmonder, “Tax Land, Not Buildings,” that advocates a radical restructuring of the real estate tax in downtown Richmond. In a nutshell, he proposes a Henry George system of taxation that would tax the land but not the improvements upon it.

As the Ambivalent One observes, “Taxing buildings creates a disincentive for development and encourages land speculation.”

Land speculation in downtown Richmond is most visible as undeveloped parking lots. And a surfeit of parking lots creates problems of its own. Abundant parking lots translate into cheap parking, which encourages commuters to drive to work solo. If parking lots weren’t so favorably treated under the tax system, the cost of parking would be higher and, on the margin, a larger number of people would either carpool or ride the bus to work.

Parking lots also are undesirable because they disrupt the urban fabric, making the business district less hospitable to pedestrians. Walkability facilitates human interaction, giving downtowns a competitive advantage over auto-dependent Nerdistans in the ‘burbs for those activities that thrive on creativity and innovation.

My only disagreement with Ambivalent Richmonder: He recommends establishing Henry George taxation for downtown Richmond. Why not for the entire city? Indeed, why not for all of the land within a logical “Clear Edge” for the entire Richmond metropolitan area?

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27 responses to “A New Tax Regime for Downtown Richmond!”

  1. E M Risse Avatar
    E M Risse

    On a roll!

    Keep it up!

    EMR

  2. Toomanytaxes Avatar
    Toomanytaxes

    Any development, be it so-called “smart development” or “sprawl” needs a concomitant increase in public facilities to support the added people, traffic, transit riders, etc. Will this be provided? Who will pay?

    Keep in mind I see the Fairfax County Board of Supervisors (with two possible exceptions) in love with mega-development at Tysons Corner, which does not have a single pharmacy (CVS at Tysons Corner Mall does NOT have facilities to fill prescriptions) or grocery store. That means more car trips.

  3. Ambivalent Richmonder Avatar
    Ambivalent Richmonder

    Jim-
    Thanks for your comments on my most recent blog post. Regarding your disagreement with me about the scope of change I suggest, I’m open to changing the structure everywhere, not just downtown. I only hesitated to suggest it since it’s clear to me how the current tax system hampers urban re-development, but I can less easily understand how such a change may affect dense urban residential neighborhoods, or suburban and rural areas.

    I’m usually not accused of being an incrementalist, but you’re right that I suggest slow change in my post. Maybe you can write a post (or direct me to an older one) detailing how this tax structure would work in areas outside downtowns?

    Also, regarding toomanytaxes’ comment, in my post I suggest increasing the tax rate in order to maintain a steady revenue stream when you stop taxing buildings. And the beauty of this tax structure is, the more the government invests in infrastructure that has a positive impact on land value, the more immediate the rewards of increased tax revenues will be- as revenue collection isn’t tied to the owner’s USE of the land, but rather the value of the land itself.

    As a corollary, if the government or private business did something to devalue the land (build a landfill or a factory nearby, for example), the landowner would receive an immediate reduction in their property tax bill as the land value would have decreased. So, in fact, revenue collection should stay steady and be more fair as well.

  4. Larry Gross Avatar
    Larry Gross

    Just to be clear…

    Henry George is best known for advocating the abolition of all taxes save those on land value.

    George attempted to separate out land into two categories:

    1) natural value of land and
    2) improved value of land.

    He thought the single tax should be placed on the natural value of the land.

    http://en.wikipedia.org/wiki/Henry_George

    Are 1. and 2. above what is being suggested?

    How would improved land be valued for tax purposes?

  5. Spank That Donkey Avatar
    Spank That Donkey

    He probably also felt that those who did not own property at all shouldn’t be able to vote..

    Why should those who do not own property be able to raise the taxes on those that do?

    Harummphh!

    Regardless, it would be curious to see how that works.. Now knowing the city of richmond, they have their hands in the tills of the parking lots receipts also…

    Bob Bobb was infamous for wanting to tax the beggars… Seriously, don’t attorney’s pay a BPOL tax? I was all for it..

  6. Groveton Avatar
    Groveton

    Wouldn’t this drive down the value of unimproved land and result in rapid development?

    This is just speculation but …

    1. I own a piece of unimproved land worth $100,000 under the old tax system (taxing land and improvements). I pay taxes of $1,000 per year on my unimproved land. I expect to develop the land but haven’t decided how or when yet. My delay costs me $1,000 in taxes per year. for the sake of simplicity, let’s say the value of the land rises at the same rate as an alternate non-land investment.

    2. The Henry George plan is implemented.

    3. My taxes on the unimproved land rise to $4,000 per year because all of the money previously raised on land and improvements must now be raised on land alone.

    4. I feel obligated to either develop the land and have it start generating a profit or sell the land to someone who will develop it. The cost of delay has quadrupled.

    I may be confused here? Am I?

  7. Jim Wamsley Avatar
    Jim Wamsley

    In answer to “How would improved land be valued for tax purposes?”

    A little more research finds this: http://en.wikipedia.org/wiki/Land_value_tax

    “There are three species of property: land, improvements to land (immovable man-made things) and personal property (movable things).”
    “LVT is an ad valorem tax where only the value of land is taxed, ignoring improvements to the land (e.g., houses, factories, …) and personal property (e.g., cars, furnishings, …). This is different from other property taxes which generally tend to fall on real estate–the combination of land and improvements to land.”

    Those who want to dig deeper may wish to look at:
    Implications of a Split-Rate Real Property Tax (Working Paper)
    An Initial Look at Three Virginia Local Government Areas
    Author(s): John H. Bowman and Michael E. Bell
    Publication Date: May 2004

    Since the time of Henry George, there has been interest in his “single tax” on land values only, and in the related notion of taxing improvements less heavily than land, if improvements are part of the property tax base. In the United States, though, the real property tax rate almost everywhere applies equally to the values of both land and improvements; several Pennsylvania cities have been the primary exceptions. Since July 2003, however, two Virginia cities – Fairfax and Roanoke – have had legal authority to tax improvements at a lower rate than land, and some other localities in the state have expressed an interest in such a “split-rate tax.”
    http://66.223.94.76/pubs/download.asp?doc_id=905

  8. Ray Hyde Avatar
    Ray Hyde

    The Virginia Land use tax effectively is a aplit tier tax. You pay one rate on the developed portion of the farm and another rate on the undeveloped portions.

  9. Jim Bacon Avatar
    Jim Bacon

    Groveton, It depends where your land is. If it’s inside the boundary where development is to be encouraged, yes, you would be heavily incentivized to develop the land or sell it to someone else willing to develop it. If it’s located outside the boundary, then it would be taxed normally.

    EMR proposes creating a “clear edge” between areas to be developed and areas not to be developed, characterized by extensive land uses such as agriculture and forestry. In those areas, where improvements are taxed, the burden is lighter on land owners. That would take a lot of the pressure off farmers to sell out to developers.

    What is the location of the land you speak of?

  10. Groveton Avatar
    Groveton

    My question was in regard to land inside the boundary.

    So, you’d be heavily incented to develop the land or sell it.

    Wouldn’t this risk dysfunctional development as people scramble to develop land? I guess the local government would have to be “locked and loaded” with their zoning and development plans before this change was instituted.

    Definitely can see how this would put a dent in land speculation. Lots of people selling would drop prices and make the speculators very sad.

  11. Jim Bacon Avatar
    Jim Bacon

    Groveton, Henry George taxation would create a market-based inducement for more compact development, as opposed to the current tax scheme, which tilts market activity towards leapfrog development. The quality of the ensuing compact development will hinge upon a variety of factors, including the nature of the zoning code and the location of planned public investment.

  12. E M Risse Avatar
    E M Risse

    Larrys question — and several other observations — are critical to answer.

    There are 40 + / – public and private services that support contemorary urban life and for which the cost varys based on location.

    For the private services chagre fees based on the cost at a particular location.

    For the public services (public utility services) charge by fee for use and capital costs via tax on the land served via Henry George.

    Grovetons hypothetical re forcing development is put in perspective by the fact that holding served land off the market raises the cost to everyone else in the Community. If one wants that privilage, they need to pay for it.

    For further exploration see SotF Chapter 7, especially the Dad Hillis Box on sentimental speculators (Chapter 7 Box 2) and Chapter 26 on transfer of property rights.

    EMR

  13. Larry Gross Avatar
    Larry Gross

    Let’s take a generic boundaried jurisdiction.

    Let’s say it’s 98% developed.

    I’m trying to understand how heavily the 98% will be taxed (or not) because it appears that under Henry George – that it would force whoever owned the land to put “something” on the land so as to call it “improved” and evade the crushing tax that would be placed on it.

    In other words.. can you just “plant” some minimal improvements on the land so that the tax will plummet?

    I hear folk saying that by taxing the unimproved land heavily that it will force the land to be developed .. to the best and highest use…. post haste

    will it? I’m not convinced.

    In the meantime… what happens to a locality in terms of steady/stable tax revenues as more and more land is “improved” and less and less land is available to be “improved”?

  14. Jim Bacon Avatar
    Jim Bacon

    Larry, Let me try to explain more clearly. Improvements would not be taxed at all, only the value of the land. It doesn’t matter if there’s a house, a parking lot, a shopping center or a 60-story skyscraper, the improvements don’t get taxed.

    What it means is that land is taxed much more heavily. Let’s say Jurisdiction X used to bring in $100 million in real estate revenue, $20 million from land and $80 million from improvements. Jurisdiction X will bring in the same amount of revenue under Henry George taxation, but the full $100 million will come from the land. The impact: the tax burden will be significantly redistributed from the owners of buildings to the owners of empty lots.

  15. Larry Gross Avatar
    Larry Gross

    Jim – thanks but the question is – “what constitutes an empty lot”?

    does a parking lot not count?

    how about a parking garage?

    how about a lot that has vendors on it or a lot in the middle of downtown that has a single family dwelling on it?

    where is the line drawn between “improved” and “raw land”?

    Second question:

    say..99% of Richmond is improved land.. and the 1% is taxed so heavily that it IS developed…

    then where do tax revenues come from?

  16. Larry Gross Avatar
    Larry Gross

    As far as I know, NYC does not use the Henry George tax approach.. any more/less than Richmond does.

    Yet.. in Richmond.. “empty” parking lots are cited as … not taxed heavily enough .. so that (I suppose, in theory).. higher taxes would force them out of business.

    Contrast that scenario with this one:

    Cut Line: For Parking Space, the Price Is Right at $225,000

    ….In Manhattan, it will buy a parking space. No windows, no view. No walls.

    While real estate in much of the country languishes, property in Manhattan continues to escalate in price, and that includes parking spaces. Some buyers do not even own cars, but grab the spaces as investments, renting them out to cover their costs.

    Spaces are in such demand that there are waiting lists of buyers. Eight people are hoping for the chance to buy one of five private parking spaces for $225,000 in the basement of 246 West 17th Street..”

    http://www.nytimes.com/2007/07/12/us/12parking.html?hp

    so .. what is DIFFERENT between Richmond and NYC?

    It’s not Henry George… I don’t think…

    thoughts?

  17. Jim Wamsley Avatar
    Jim Wamsley

    “Spaces are in such demand that there are waiting lists of buyers. Eight people are hoping for the chance to buy one of five private parking spaces for $225,000 in the basement of 246 West 17th Street..”

    If it were a free market, the price of the parking space would go up until one buyer got it. That is how an auction works. Right now the developers are subsidizing parking spaces at the expense of the tenants of the building.

  18. Jim Wamsley Avatar
    Jim Wamsley

    “Jim – thanks but the question is – “what constitutes an empty lot”?”

    This is an important question when you tax land at different rates as we do with rates where farm lands are taxed at a lower rate.

    It does not apply in a George tax district. The lot is taxed the same whether it is empty or developed in a George tax district.

    The revenue burden is shifted from the largest, most expensive, best maintained buildings to the land under every building. In other words, taxes are shifted from highly productive users, to slum lords and speculators.

  19. E M Risse Avatar
    E M Risse

    Please, please folks let us stop trying to make this so difficult!

    The land tax is base on the cost of providing services to the land.

    If the services that are provided will support a 40 story building and there is a 3 story SRO on the site waiting for someone to pay an inflated price, the land is taxed the same as if it had a 40 story building.

    If the services will support a three story “work force condo” and it is a parking lot, same story.

    As we noted above if someone wants to speculate, be the Community’s guest, just pay the fair cost of that decision.

    EMR

  20. Larry Gross Avatar
    Larry Gross

    sometimes I’m pretty dumb and this is one of those times.

    sometimes I don’t see the hornet on my nose because I’m looking 20 feet away for the nest…

    I’m totally confused.. I admit it.

    Are we taxing every parcel with respect to it’s highest and best potential.. such that if that parcel will support a 40 story building but the owner has a newspaper stand on it.. that he will ooze big time red ink until he agrees to either build a 40 story building or sell out to someone else who will?

    I can understand this concept because the market actually works this way in some respects. For instance a parcel of land without water/sewer is not going to be as valuable as a parcel of land with it.

    I’m looking at a place like Richmond with thousands and thousands of parcels of land – and there is no way that all of it can be 40-story buildings even if each parcel has the adequate infrastructure to do so.

    This is why we have a business phrase called “vacancy rate”.

    When there are excess office spaces – the market stops building new ones for a while..and when there is a shortage – a flurry of new ones are started.

    But there is no way that all of Richmond from one end to the other could be office buildings and I don’t see how you’d tax each parcel on it’s potential to be an office building… no matter what the market for office building is.

    help me. help me. I fallen.. and I can’t get up! 🙂

  21. FW Avatar
    FW

    Larry,

    Brilliant response to the outdated discredited socialist ideas being spouted on this blog.

    Actually, landowners who wait to develop their land until the market is willing to pay for higher density are doing society a favor.

    The core of Reston Town Center sat undeveloped for 40 years. Building what is there today would have been financially impossible back then. Ironically, with the crash in the condo market, what was built over the last few years is no longer possible today. Fortunately, the developer is patient and will wait for market conditions to return.

    Should the remaining few vacant acres in the core be developed as cheap low-rise rental properties to bring in some immediate income to pay a Henry George type tax? That would set back the best use by another 50 years or more.

    Frankly, raw land uses no government services, other than the preservation of deeds in the courthouse.

    The largest cost of local government is education. But it isn’t like Fairfax County has already built public schools and bought buses and hired teachers for students who haven’t showed up yet because some landowner hasn’t built another 40 story apartment building on a vacant lot.

    Contrary to Risse’s assertions, landowners are not taxed for “services” provided.

    Risse wrote: “The land tax is base on the cost of providing services to the land.

    If the services that are provided will support a 40 story building…”

    I must be dumb too, because all I ever hear about are overcrowded public schools with classes that are too large meeting in poorly ventilated trailers.

    Where are all these “services” already provided costing other taxpayers that Risse is talking about?

    Keep asking questions.

    If you want a better development pattern, get rid of zoning and property taxes.

  22. Larry Gross Avatar
    Larry Gross

    “If you want a better development pattern, get rid of zoning and property taxes.”

    Is this advice the same with respect to land already improved in areas like Arlington and Reston but also with respect to greenfield land in outlying commuting jurisdictions?

    Schools are easy with respect to roads and water/sewer which are “network” in nature and cannot be easily expanded if the land they traverse is developed at much high densities than their design capacities.

    You simple cannot errect a 40 story building where there IS water/sewer but only enough to support low-density development.

    How do you reconcile the “let them build whatever they want – anywhere” approach with the inevitable need to go back and redo the underlying infrastructure to support might higher uses than they were orginally designed for?

    More to the point.

    What is the role of government and planning with regard to the provisioning in road and water/sewer infrastructure?

    Are you advocating that private interests should handle ALL of this as part and parcel of the “build anywhere” concept?

    Who would be responsible for things like environmental standards for wastewater discharges and water supply development?

    Under the “let them build anywhere” idea – would there be a legitimate need for Comp Plans?

    If so.. who would maintain them?

  23. Ray Hyde Avatar
    Ray Hyde

    “The impact: the tax burden will be significantly redistributed from the owners of buildings to the owners of empty lots.” (And by extension, less developed lots because the income won’t offset the higher taxes on the land.)

    and the result will be to develop to the maximum extent, posthaste.

    This will be subject only to the limitation that there is only so much development that we can actually use. This is a point that EMR frequntly makes when he proposes higher density as a means of provideng more conservation. That’s why the development will be posthaste: get in before the market is destoyed.

    It is a dumb idea from the get go. No wonder he has been largely discredited.

  24. Ray Hyde Avatar
    Ray Hyde

    “If it were a free market, the price of the parking space would go up until one buyer got it. That is how an auction works. Right now the developers are subsidizing parking spaces at the expense of the tenants of the building. “

    The owners decide the price at which they are willing to sell. A free market does not necessarily mean an auction. The owners might like to get the full auction price but be unwilling to wait, and pay the costs, if they can get a ready buyer sooner.

    If you argument was correct, the owners would also auction off their apartment vacancies at the highest rate. In that case we cannot tell, offhand, whether it is true that the apartments are subsidizing the parking spaces, or vice versa.

    In fact, at $225,000 for a parking spacee with no amenities, the article stated that the income was higher per sqare foot for the parking spaces than for the apartments: in other words the parking is subsidizing the housing.

    As a result, developers are now applying to put more parking spaces in new construction, because it is more profitable.

    If we think we are going to solve our congestion problem by rationing parking spaces, we are kidding ourselves.

  25. Larry Gross Avatar
    Larry Gross

    Is the idea that the 225K parking space is cheaper than an apartment condo in the same building or close by?

    What struck me was the fact that unless one owned a Rolls . that the parking spot would cost more than the car… unless you buy a new 80K car every 10 years….or so.

    But I think the point of the article was not the limiting of parking spaces but the fact that they had a market-based selling price…

    and my thought was if they cost that much in NYC.. do they cost that much in Richmond and if not – why not? a rhetorical question I admit.

  26. FW Avatar
    FW

    Larry,

    The largest polluters of the Chesapeake Bay are government sewage treatment plants that don’t conform to current standards.

    I have no problem with pollution discharge standards for sewage, but government is the one who has been the problem.

    As far as “Comprehensive Plans”, every one I am familiar with has been a dismal failure, so what is the point?

    Dominion Power and Washington Gas have no problem planning for growth in demand, so why should the Fairfax County Water Authority, now known as Fairfax Water?

    From a water demand or sewage treatment capacity perspective, does it matter where in a jurisdiction the development takes place? If the developer of whatever project pays the cost to get to the trunk lines, what difference does it make?

    Companies in the private sector are not idiots and do not build where the necessary infrastructure is unavailable and unattainable.

    Some socialists want to delude you into thinking government planning and control are the only solutions.

    My point on property taxes is that most of what is paid is not for required services, but to facilitate a socialist redistribution of wealth.

    The elderly are forced out of their homes because they cannot afford the real estate taxes imposed to subsidize the education of someone else’s children.

    A common theme on this blog is the redistribution of wealth from Northern Virginia to the rest of the Commonwealth. The real issue is the redistribution of wealth inside each jurisdiction, from those who are not using the “services” of public education to those who currently have children in the public schools. This is a massive socialist transfer within each jurisdiction. So why whine about socialist transfers between jurisdictions?

    I support humanely phasing out all socialists transfers. Where does E M Risse stand? Does he support stealing my money too?

    For all his talk about locational variable costs, education transfers are the bigger rip off of taxpayers.

    Risse are you listening?

  27. Ray Hyde Avatar
    Ray Hyde

    “Is the idea that the 225K parking space is cheaper than an apartment condo in the same building or close by?”

    No. On a square foot basis and amenities provided basis the parking spot brings in more and costs less per square foot than the condo or apartment. Since other nearby apartments do not have enough parking the cost has risen to the point that now developers are building additional parking, over and above what is required, because it is more profitable than the homes.

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