Oregon Should Tax Land, Not Buildings

by Jeff Smith and Kris Nelson

While Oregonians have cut property taxes, we have saved little and increased land speculation. What we should cut is one part of the tax -- the rate on huildings -- while raising the rate on land. As it has elsewhere, this shift would save money for most homeowners and businesses while reinvigorating urban centers and protecting open space.

We send the wrong message by taxing buildings. We penalize owners who improve their properties and reward these who let property decline. On the other hand, cities that don't tax buildings - such as those in Australia that tax only the land -- double the built value per acre. Build a more efficient office or a better looking home and your tax liability does not go up.

Oregon reformers, however, threw out the good with the bad. Lowering the tax on property merely inflated the price of land. That's a boon for some --- those who sell out and move to cheaper digs, and those who stay and speculate in real estate. Yet for th ose who do neither, there is a price.

* First, rewarding speculators wastes land. When an owner keeps a central site vacant or underutilized, developers must turn to sites far ther out. Extending infrastructure past usable sites is expensive. If developers had to pay up front, many cit ies would stop sprawling.

* Second, the burgeoning price of land makes it hard for renters to become owners. Indeed, Katya Haub, a graduate student in communications at Portland State University, found that in Portland, as in other major U.S. cities, renters now outnumber owners. E xpensive land not only widens the gulf between haves and have-nots, it destabilizes democracy. Thomas Jefferson, who envisioned a nation of owner occupants, also proposed a "ground rent" In place of taxes on buildings and other goods.

* Third, higher-priced land means buyers must borrow more. Heavier mortgages and higher lending rates redirect money from savings, investment and job creation into the growing private debt. Excess debt devalues the dollar and is bad for business .

Australian towns that keep our kind of property tax have more bankruptcies, while towns taxing only land have more successful business start-ups. In the late '50s, Denmark switched briefly to a land tax. Inflation dropped from 5 percent to 1 percent and i nterest rates fell from 6.25 percent to 5 percent while 100,000 new jobs were added. Even Fortune magazine, back in 1903, noted that the land tax "looks like an idea businessmen ought to embrace."

Home buyers benefit, too. A tax on land lowers its price and spurs owners to erect homes. More homes means lower-priced housing. Affordable homes on affordable land put more people into their own homes, Pittsburgh, with 15 other cities in Pennsylvania, ta xes land at a rate six times higher than buildings and has more owner-occupants than most major U.S. cities.

Redirecting land values from speculator to society at large also bridles sprawl. Since sites closer to the center are worth more, those owners would pay more. They'd want to attract any development that might otherwise have gone to the suburbs, sparing fa rms. Instead of sprawling, cities recycle their sites. Johannesburg, South Africa, taxes land, not buildings, and reuses its sites in just over 20 years.

The move may silence the battle over open space. The tax makes land less of a lure to investors and more of an attainable dream to trusts that want to protect natural treasures.

As with any tax reform, some win, some lose. A study of Clark County. Wash., found that shifting the levy from buildings to locations woul more than double the tax on vacant buildings and parking lots and increase by up to one-fourth the tax on car-orien ted commercial strips.

However, most owners get a tax cut. The study found taxes would drop moderately on pedestrian-friendly neighborhood shopping areas, by 5 percent for single-family homes, by about one-third for multifamily units and by one-third or more for industrial site s.

Not only does the bottom line look good, so does the moral footing. As lone owners, we don't do much to increase land value; as a community we do. If government fills the potholes, purifies the water and teaches the kids, site values rise. If more people pour into Portland, site value rises.

Land value is the perfect measure of how well a society is doing. If we don't collect that rise. becomes a "giving." Rather than reward sprawl, inflate housing prices and amass debt, Oregon could quit taxing all but locations. By sharing our land's value, we could create the state we want.

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This article appears courtesy of The Progress Report