Policy - Land Value Taxes
This is the third entry in our ongoing Policy series. Pittsburgh is in the midst of a severe housing crisis, with many neighborhoods becoming increasingly out of reach for many families. While the causes for our housing problems today are many, the goal of Pro-Housing Pittsburgh is to advocate for each and every change that can lessen the extent of the crisis. Each entry in this series describes a specific Policy that can be undertaken by the local government to help with the housing crisis in Pittsburgh.
As part of that advocacy, we are calling for the City of Pittsburgh, and all other taxing bodies in Allegheny County, to switch their current property tax systems from Flat Rate Taxes to Land Value Taxes or revert to the Split Rate Tax system Pittsburgh had before 2001.
What are Land Value Taxes?
In most municipalities, including Pittsburgh, property taxes are ‘Flat Rate’ - they are levied on the assessed value of the entire property, both the building and the land it sits on. A Land Value Tax is levied solely on the assessed value of the land. A Split Rate Tax levies a different rate on land values and building values. Land Value Taxes incentivize land owners to develop their land - it makes it more costly to hold empty or blighted land as a speculative investment.
Consider the neighborhood of Uptown. While it is seeing a lot of new development, there are also many parking lots, vacant lots, and blighted buildings. If we look at two neighboring buildings in Uptown, 1505 Fifth Ave and 1507 Fifth Ave, our Flat Rate Tax system’s subsidization of blight is cast into stark relief.
1505 Fifth Ave is on the left, 1507 Fifth Ave is on the right.
1505 Fifth Ave is a boarded up three story building, a blight, on 1,800 square feet of land. Next door is 1507 Fifth Ave, a similar sized but well maintained building, also on 1,800 square feet of land. Under a Land Value Tax, these two properties would pay the same amount in taxes.
But in 2023, 1505 Fifth Ave, the blighted building, paid ~$1,200 in taxes while 1507 Fifth Ave, the well maintained building, paid ~$4,200 in taxes. We’re taxing people who contribute to our community while subsidizing those who blight it.
Land Value Taxes are widely seen by economists as superior to Split Rate taxes, which are in turn seen as superior to Flat Rate Taxes. A recent poll of 50 leading economists in the US shows widespread agreement with the statement: “Shifting the burden of municipal property taxes towards land and away from improvements such as buildings - as proposed in the Detroit land value tax plan - will enhance the incentives for owners to develop their land and thereby give a substantial boost to local economic growth over a ten-year horizon.”
Several economics studies have been conducted on the impact of Split Rate Taxes on housing construction in Pennsylvania specifically. If we bring back Split Rate Taxes or use Land Value Taxes, then we tax land more heavily than buildings, thus reducing the subsidy for blight while simultaneously reducing the tax burden for those who contribute to their community and build more housing. Yang (2014) shows that municipalities in Pennsylvania that adopted a Split Rate Tax over a Flat Rate Tax saw an increase in annual housing construction by 8.4%.
Land Value Tax in Pittsburgh
From 1913 through 2001, Pittsburgh did have a Split Rate Tax system where it taxed land at a higher rate than structures. Both Oates & Schwab (1997) and Plassmann & Tideman (2000) found that this tax structure encouraged more construction in Pittsburgh in the late 20th century than other rust belt cities. Unfortunately, City Council repealed the Split Rate tax in 2001 in the aftermath of the mid-90s tax assessment debacle as part of the political struggle between then-Mayor Murphy and then-Council President O’Connor. This repeal was not due to issues with Split Rate Tax system itself, but with our county’s ongoing tax assessment issue.
It is time for Pittsburgh to reclaim its heritage and bring back city wide Land Value Taxes.
Suggested Policy
The City of Pittsburgh, and all other taxing bodies in Allegheny County, should switch their current property tax systems from Flat Rate Taxes to Land Value Taxes or revert to the Split Rate Tax system Pittsburgh had before 2001.
Resources:
Land Value Taxes - What are they and where the come from - Chicago Fed Letter
The Game of Rent and Land is a Big Deal by Lars Doucet
Progress and Poverty by Henry George
LVT - Found and Lost - Pittsburgh - Why was a successful LVT system abandoned?
The Effects of the Two-Rate Property Tax: What Can We Learn from the Pennsylvania Experience?
