Land Value Tax
Frequently Asked Questions (and Responses)
If we implement LVT how will that change New London?
The drag on economic development that provides compact development or reuse of existing compact development will be capitalized into lower rent, and higher occupancy. It will obviate the need for the sort of tax abatements that push revenue needs onto residential neighborhoods and those least able to afford it.
Once word is out that renovation and rehab of existing homes will be cheaper than the suburbs, the middle class will find it easier to return to the urban core of New London, as well as the traditional colonial and Victorian neighborhoods (Vauxhall, etc.)
If property owners are forced to do something with their property, fix it up or rent it, because their taxes will go up, and can’t afford to, won’t you just be forcing them to turn their property over to the city?
No. Unlike many other redevelopment plans, LVT does not “force” any particular outcome for land. If there is a market for that land, and the owners refuses to build, there are two options:
1. Sale of the land to someone who does want to build.
2. Take advantage of an improved market atmosphere to build on their own. What prevents construction most in our urban cores is the heavy weight of taxation on the actual building and/or business activity. By removing that deadweight, markets return.
If they cannot afford to build, they will sell. They will not walk away. No one walks away from raw land. They DO walk away from buildings, which require capital-intensive maintenance.
If there is indeed no market even with removal of the deadweight of traditional taxes, then the property owner has the self-interested right to go to the assessor and ask for a value reduction on that particular parcel of real estate.
During these hard economic time, and with credit hard to come by, how do you expect, people to fix up their properties, even if they want to?
Even in hard economic times, there are needs to build and grow. By creating an economic atmosphere that guarantees lower taxation on labor and capital, diffused economic activity will gravitate to a place where investment of capital and use of lab or is de-taxed.
Correlating with that is the fact that a developer who goes to get a loan will have to telescope all of the cots, including taxes. If New London provides a “credit” on tax permanently, a lender sees a better ability to pay back any loan.
In no case has LVT “forced” development in an economic environment that discourages construction.
The problem with property tax is that it’s subjective. Who really knows what the value of property is worth whether land or buildings? And since it’s so subjective how does LVT make things any better?
If the property tax (or, more correctly, assessment) is so subjective then why do we tax property now? Why not exclusive taxes on wages and sales and business? the fact is, we do tax property using a system of valuation that can be perfected greatly. Of course, by saying we can’t value real estate accurately, it permits the most wealthy corporate and private entities to pass on the burden of tax to those least able to afford tax.
Assuming these arguments have merit, LVT at the very least removes from the assessment equation about 75% of the controversy: buildings.
A good property valuation system, done frequently provides very close coefficients of dispersion all over the US and the world. Definition of Market Value
Here's the definition of market value used by the International Association of Assessing Officers (IAAO).
Market value is the major focus of most real property appraisal assignments. Both economic and legal definitions of market value have been developed and refined. A current economic definition agreed upon by agencies that regulate federal financial institutions in the United States of America is:
The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
The buyer and seller are typically motivated;
Both parties are well informed or well advised, and acting in what they consider their best interests;
A reasonable time is allowed for exposure in the open market;
Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto;
The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
With LVT won’t we be hurting people who have land and a small house but are on fixed incomes? Won’t this force them out of the city?
The “poor widow” argument is quite old, and quite inaccurate. The few cases of someone owning valuable land and being indigent strains credulity. Luckily, to counter that assertion, our system in Connecticut has programs that defend these cases thus:
Homeowner/Renter Tax Credit: An annual property tax credit or rent rebate is available to residents, age 65 or older, or to a surviving spouse, age 50 or older, who meet certain residence and income requirements. Regardless of age, a totally and permanently disabled person is also eligible. Contact the local assessor in your town or city hall for details and forms.
This protection would be no different under LVT.
If I have a house worth $150,000 on two acres in New London, and my neighbor has a million dollar house on less than an acre, wouldn’t I pay more property taxes than my “wealthy’ neighbor? Is that fair?
LVT is a function of value. The million dollar house was built on that site, because the site is valuable. It can “carry” that expensive house. A small house on two acres in Connecticut? The land can’t be that valuable. It is likely unbuildable, and therefore has little in the way of raw land value (say hilly, rock, swampy).
Also, why is it fair that someone who has worked and strived to get a million dollar house supposed to subsidize the rest of us? What inherent wrong have they committed by being successful? I’d rather a successful person was in New London than in Waterford. A group of them would be even better.
We have various businesses that have land with large parking lots. If they are forced through a land value tax to pay for those empty lots, won’t they be forced to move out of the city, and thus the city loses them from the tax rolls?
If someone insists on having a car-intensive business in a compact won like New London, we should call it rightly “a cost of doing business.” Why is that cost of doing business unacceptable while the cost of maintaining a $10 Million building, employing dozens in construction, many tenants, and support services is just swell?
I hear that Pennsylvania is getting hit harder than almost any state in the country and yet they have LVT. So, why would we want to use it here?
Pennsylvania is not getting hit as hard as the rest of the nation. Our LVT cities have mostly no increased taxes. Connecticut cities are facing huge holes in their budgets.
Factoid: Pennsylvania’s job forecast for 2009 is predicted to be down 2.6%. Connecticut? Down 4.9%
LVT is great in theory, but it just won’t work here in New London. We just don’t have enough land and over 50% is owned by non-profits that don’t pay property tax. I just don’t believe we have that many vacant lots. So, why should we even consider something like LVT?
When it is proved that the laws of physics and economics do not work in New London, I will be happy to admit defeat.
Until that time:
1. There is plenty of vacant and underused land in New London. Of 6,400 taxable records, 797 are vacant or have a building value less than 10% of land value. Purely vacant is 734 parcels.
2. Harrisburg has 55% of its land tax exempt. That is one of the prime movers in why they have LVT: what land exists that is taxable must be used to its highest and best use. New London needs to get the same value added from what taxable land exists.
I’m really concerned that LVT would destroy our open spaces within the city. Even though we are a city we do have birds and wild life in various parts of the city and if we just develop everything we’ll have no open space. So, help me understand how LVT would address this problem (I’m a bird watcher and love the varieties we see now).
I too am a bird watcher. Most open spaces that can sustain a viable habitat for wildlife is most often off the tax rolls in the form of parks and nature preserves. The pressure to develop beyond the city’s fringe is a direct result of disinvestment and depopulation of New London. Save the city, save the countryside. LVT will bring economic action back to lots and parcels that have been developed since the late 1600s. They are still viable building sites.
The flip side is a place like Youngstown or St. Louis which is returning tracts of land back to nature; ripping out the infrastructure. That is considered a white flag of surrender in these places. I would call it that in New London.
If LVT is so great why aren’t more cities and states throughout the country using it? We don’t want New London to be an experiment for something that no one else wants to try.
The fear of the new. The fear of landowners and absentees. The attraction of inertia. Lack of education. All these things combine to inhibit LVT. Yet, most cities and towns in Australia and New Zealand have used LVT for 100 years. Of the 24 cities that used LVT in Pennsylvania, only three have gone back; most often due to a botched reassessment. The cities that have gone back (Uniontown after one year, Connellsville after 9 years and Pittsburgh after 90 years) have by any objective measure lagged behind LVT cities that have moved forward. Indeed, loss of LVT in Pittsburgh hammered the downtown in particular, and helped drive the city into near-bankruptcy due to an upswing in tax delinquency and abandonment in the Hill District and Homewood (poor homeowner neighborhoods).
Why shouldn’t we just use LVT in certain blighted areas, or downtown, or in the Fort Trumbull area? Why would we want to use it in residential areas that are just fine?
If we picked districts to use LVT, the landowners in those areas would increase their asking price for land would go up; hoping to capitalize the lower cost of construction and rehab into a higher sales price. This has been a consistent outcome in other Enterprise Zones and districts of varying types over the years in other cities. Areas not picked for this advantage would be starved of normal flows in investment capital. The political resentment of creating “tax breaks for he, but not for me” cannot be emphasized enough.
Some of the blighted areas of New London were once “just fine.” Let’s provide an upfront incentive to keep up upkeep; to assist ongoing efforts to infuse new capital and sweat equity to ensure a quality neighborhood permanently.