Supporting economic development. Advancing equity. Reducing greenhouse gas emissions. Maximizing community investments. Increasing infill and lessening sprawl.
These are some of the potential benefits of land value tax (LVT) districts, according to Michael Krantz, acting program manager of Metro Transit’s office for Transit Oriented Development.
On Nov. 15, Krantz presented via Zoom at an event sponsored by several environmental and community groups on a white paper his office produced about pending legislation that would enable Minnesota cities to create such districts.
In these districts, the land value portion of properties would be taxed at a higher rate than the building portion, with the district collecting the same amount of revenue as could be raised with a conventional property tax.
According to Krantz, LVT is powerful for supporting economic development. In a conventional system, he said, the property taxes on vacant land are very low, so the incentive for holders of those lots to develop the land or sell it is also low. This is especially true, he said, if the value of that land has been increasing year after year and possibly increasing at a faster rate than what they’re paying in taxes.
On the other side of the equation, said Krantz, a developer who may be interested in developing the lots will be very aware of the fact that if they developed a lot, the property taxes on these parcels is going to increase dramatically. So, according to Krantz, the development that they’re considering needs to be capable of covering this significant increase in property taxes, which in some cases may deter development.
But with LVT, Krantz said, property taxes are the same for vacant land and developed land so the incentive to hold on to vacant lots goes way down because the property taxes are much higher on them. Conversely, said Krantz, a developer is going to be much more attracted to developing such lots because the property taxes are going to be much lower than they would have been in a conventional system.
From an equity perspective, Krantz said that his office’s study showed that areas of concentrated poverty could see a decrease in property taxes under a LVT system because these areas tend to make more efficient use of land, with the buildings representing a larger percent of total value on these parcels.
Moreover, according to Krantz, it’s worth considering the role that our property tax system plays in our current housing crisis, from a lack of supply but also from a pricing perspective because of the rents that are necessary to make a development work in the conventional system.
His office did a case study for a luxury apartment building in northeast Minneapolis and determined that if eight units in the building were made affordable under the city’s inclusionary housing policy, there would be an annual reduction in revenue of about $250,000. But if the building were in an LVT district, it could see a decrease in property taxes of $400,000 annually.
Krantz said he thinks pairing LVT districts with inclusionary housing or other affordable housing policies could be a powerful way of achieving affordability without additional investment from cities.
With respect to reducing greenhouse gas emissions, Krantz said that the University of California at Berkeley has done fantastic work evaluating the potential benefits of various policies for reducing greenhouse gases. He notes that the urban infill is by far one of the most important things that we can do to reduce greenhouse gas emissions.
Krantz said that land value per acre data along the light rail’s Green Line indicated that LVT would increase development near the line, which supports infill and transit oriented development at the same time that it’s discouraging sprawl. He said that this shows that LVT can guide new economic development towards existing investments and make more efficient use of them.
While Metro Transit has explored the anticipated impacts of a land value tax, the agency is not endorsing legislation that may come before the Minnesota Legislature.
In sum, Krantz’s presentation and white paper make a compelling case for passage by the MN legislature of the bill that would enable cities to create LVT districts, which currently they’re not legally authorized to do. Let’s legalize LVT in Minnesota for the benefit of our communities.
Rich Nymoen is the president of Common Ground USA Minnesota Chapter. He can be reached at firstname.lastname@example.org
Editor’s note (12/12/22): This post has been updated with a sentence that makes clear that Metro Transit is not endorsing legislation.