How Land Value Taxes Could Change Quality Affordable Housing in Richmond

By Erin Sweet

A Land Value Tax (LVT) is a property tax that, unlike traditionally property taxes, does not take into account any value of improvements on the land, but rather taxes only the value of the land itself.[1] This means that for tax purposes, it really is all about location, location, location. While this sounds like a dramatic shift, most property tax schemes already take land value into account through Split Rate Taxes (SRT).[2] Rather than imposing higher taxes on people who are taking care of their property, LVT seeks to tax the value of the land regardless of what’s on top of it.[3] This means that homeowners with large homes, well cared for homes, and so on may actually see their taxes go down, since just the location of their land now contributes to its value and taxability.[4] The same would go for businesses, apartment buildings, and any other developed entities as far as property taxes go.[5]

The reason an LVT is valuable is that it raises the taxes that people pay on undeveloped, underdeveloped, or abandoned properties.[6] While these properties can exist anywhere, many of them exist in downtown or urban spaces.[7] These abandoned and derelict properties can not only bring down the value of neighboring properties, but they can also invite crime and less investment in the community which continues to flow on to things like decreased funding for schools and so on.[8] LVT encourages improving upon these lots so that owners can gain back their tax costs from rent, businesses, and more.[9] Since no improvements are taxed, there’s no risk property tax-wise in making improvements to these empty or destroyed lots.[10]

The City of Richmond already has a strong policy against “neighborhood blight” as evidenced by their creation of the Vacant Buildings Registry in the early 2000s.[11] This registry is still in place; it seeks to locate owners of abandoned property and even fines them for noncompliance with codes or the registry itself.[12] Even now, the city is trying to contend with its abandoned and derelict buildings by creating a separate abandoned building tax.[13] This proposed tax wants to accomplish essentially the same thing as an LVT: to get people with these kinds of properties to improve them and do something with them.[14] However, it misses a full opportunity to reward those that are already doing something with their properties and to incentivize further improvement in those existing buildings. This goal is achievable because of the lower property taxes the city has rolled out this year, but that is still a variable yearly flux rather than a permanent change.[15]

As we’ve seen rents skyrocket recently, the one thing that hasn’t changed is the property itself. Anyone who’s lived in housing meant for students knows it’s usually poor quality yet an incredible price. Unfortunately, it is clear that with lower property tax rates, these tax breaks usually don’t transfer over to lower the rent price or up the quality of the home by making repairs or improvements.[16] While some of this could be due to slumlord behavior, it can also be attributed to a higher tax owed for improving upon your land—adding value which then can be taxed more.[17] An LVT would offer a potentially real solution because this fear of moving up in tax liability wouldn’t exist. Additionally, abandoned or derelict property owners would then have a real incentive to improve their buildings which then kicks capitalism into gear.[18] Because in theory landlords or property owners want to retain renters or businesses, they would need to improve their facilities as well, which generally will only benefit Richmond consumers and renters.

Richmond currently has not allowed an in depth analysis of parcel-by-parcel LVT, but a group has studied the impact based on publicly available tax and land data.[19] They have shown that while commercial and residential taxes decrease, the budget for the city remains virtually the same because all lost revenue is made up from unimproved properties paying their fair share of taxes.[20] People should not be rewarded for leaving valuable land to decay, and people should not be punished for improving our city.

 

[1] Land Value Tax, Center for Property Tax Reform, https://centerforpropertytaxreform.org/land-value-tax/ (last visited Sept. 22, 2021).

[2] Land Value Tax, Center for Property Tax Reform, https://centerforpropertytaxreform.org/land-value-tax/ (last visited Sept. 22, 2021).

[3] Land Value Tax, Center for Property Tax Reform, https://centerforpropertytaxreform.org/land-value-tax/ (last visited Sept. 22, 2021).

[4] Daniel Herriges, What’s With That Empty Lot in the Heart of the City?, in You Get What You Tax For 5, 8 (ND).

[5] Daniel Herriges, What’s With That Empty Lot in the Heart of the City?, in You Get What You Tax For 5, 8 (ND).

[6] Daniel Herriges, What’s With That Empty Lot in the Heart of the City?, in You Get What You Tax For 5, 5 (ND).

[7] Daniel Herriges, What’s With That Empty Lot in the Heart of the City?, in You Get What You Tax For 5, 5-6 (ND).

[8] City of Richmond VA Vacant Building Registry, Safeguard Properties, https://safeguardproperties.com/alerts/city-of-richmond-va-vacant-building-registry/ (last visited Sept. 22, 2021).

[9] Daniel Herriges, What’s With That Empty Lot in the Heart of the City?, in You Get What You Tax For 5, 7 (ND).

[10] Daniel Herriges, What’s With That Empty Lot in the Heart of the City?, in You Get What You Tax For 5, 7 (ND).

[11] City of Richmond VA Vacant Building Registry, Safeguard Properties, https://safeguardproperties.com/alerts/city-of-richmond-va-vacant-building-registry/ (last visited Sept. 22, 2021).

[12] Vacant Building Information, City of Richmond, Virginia, https://www.rva.gov/planning-development-review/vacant-building-information (last visited Sept. 22, 2021).

[13] Blake Vickers, Richmond Commission Discusses Ad Valorem Tax Rates, Abandoned Downtown Properties, Richmond Register (Aug. 17, 2022), https://www.richmondregister.com/news/richmond-commission-discusses-ad-valorem-tax-rates-abandoned-downtown-properties/article_db2c3488-1d70-11ed-ad7d-33aa88521209.html.

[14] Blake Vickers, Richmond Commission Discusses Ad Valorem Tax Rates, Abandoned Downtown Properties, Richmond Register (Aug. 17, 2022), https://www.richmondregister.com/news/richmond-commission-discusses-ad-valorem-tax-rates-abandoned-downtown-properties/article_db2c3488-1d70-11ed-ad7d-33aa88521209.html.

[15] Blake Vickers, Richmond Commission Discusses Ad Valorem Tax Rates, Abandoned Downtown Properties, Richmond Register (Aug. 17, 2022), https://www.richmondregister.com/news/richmond-commission-discusses-ad-valorem-tax-rates-abandoned-downtown-properties/article_db2c3488-1d70-11ed-ad7d-33aa88521209.html.

[16] Daniel Herriges, Rewarding Neglect and Punishing Investment in Struggling Neighborhoods, in You Get What You Tax For 13, 14-15 (ND).

[17] Daniel Herriges, Rewarding Neglect and Punishing Investment in Struggling Neighborhoods, in You Get What You Tax For 13, 14-15 (ND).

[18] Daniel Herriges, Rewarding Neglect and Punishing Investment in Struggling Neighborhoods, in You Get What You Tax For 13, 15-16 (ND).

[19] Is a Land Value Tax Right for Richmond, Virginia?, Center for Property Tax Reform, https://centerforpropertytaxreform.org/2021/09/22/is-a-land-value-tax-right-for-richmond-virginia/ (last visited Sept. 22, 2021).

[20] Is a Land Value Tax Right for Richmond, Virginia?, Center for Property Tax Reform, https://centerforpropertytaxreform.org/2021/09/22/is-a-land-value-tax-right-for-richmond-virginia/ (last visited Sept. 22, 2021).

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