3.9.1-7: Land Value Capture as a Planning Tool

Module 3, Section 9.1-7

Land Value Capture as a Planning Tool

9.1 Taxation can both create and destroy wealth as well as direct the location of wealth creation. For instance, a tax on windows was used in Great Britain from 1696 until 1851. As a result, the poorer people bricked or boarded up their windows while the very rich built mansions with an excessive number of windows to ostentatiously display their wealth. An unpopular tax on date trees caused Egyptian fellahs to cut down their trees.

9.2 Land value capture harnesses economic incentives in ways that facilitate the goals of urban planning. There are compelling reasons to first develop the highest value land found near population centers. With land value capture a developer or investor desiring these sites will not be penalized with a tax increase as a result of each improvement made. But doing little or nothing on a site of high value is discouraged. Thus with land value capture downtown land is put to its highest and best use.

9.3 Growth then radiates smoothly from more intensive use in the urban centers to rural areas without pockets of vacant or poorly utilized land in between. Urban sprawl is curtailed and rural land is more readily retained in its natural state, available for parks and nature preserves. There is also less pressure to build on agricultural land near urban areas. Rational and balanced development which curbs sprawl thus also makes better use of existing infrastructure of transportation, utilities, fire and police protection and other public services. All of these factors increase social cohesion and form the basis for an interesting, safe, “walkable” city.

9.4 Land for safe parks and green spaces in downtown areas is facilitated in at three least ways with land value capture: (1) land is more affordable for public purchase for public spaces because of the elimination of the land price bubble due to land hoarding, under-utilization, speculation; (2) because parks and green spaces are desirable public goods, living close to them enhances land values in their vicinity, thus bringing more revenue into the public coffer; and (3) capturing full land rent yields a strong base of public revenue to fund upkeep and protective services for parks and green spaces.

Avoiding urban sprawl also reduces public outlays so and reduces the need for a tax base. The only way a city can have a tax base is to generate a taxable surplus. The only way it can generate a surplus is to be efficient. The way to make it most efficient is to develop the ripe, rentable, surplus generating central land and spare the heavy cost of extending infrastructure into the lean, premature, sprawled, submarginal urban fringe. – Mason Gaffney, Adequacy of Land as a Tax Base

 

9.5 walkable street in Madison WI Madison, Wisconsin was named the most walkable city in the US in a recent ranking of the walkability of the largest 100 US cities.

Too often urban planning relies on regulation and grant-funded projects that are not very cost-effective and often more complicated than need be. Conventional property taxes which tax buildings more than land, wage and occupational taxes and special sales taxes all are disincentives for highest-and-best use of land in urban areas. If we want to encourage “green” cities with productive businesses and well-kept apartments buildings with affordable living units it is important to understand how planning and land economics can compliment each other. Land value capture is thus an essential component of good urban planning.

9.6 Other significant changes detected in similar studies of tax reform through land value capture:

  • Taxes on the majority of owner-occupied and rental homes are reduced.
  • Construction and rehabilitation of residential and commercial buildings are stimulated.
  • The serious escalation of housing prices and rent experienced by most United States cities was averted in these Pennsylvania cities because housing stock expanded.
  • Central business districts were revitalized because they attracted greater private investment.

 

9.7 More efficient land use resulted as a city's idle lots and underused buildings were put into productive use; this in turn reduced the pressure for costly and environmentally harmful urban sprawl.

 

A record of land value changes over time would also provide a useful planning tool. When a new mass transit is being planned it would be possible to use the existing record of land value changes to estimate which of a choice of routes would provide the largest land value increase. There may be perfectly valid reasons for choosing an alternative route but at least this decision would be taken in the light of a clear indication of the total value the community puts on each alignment. - Dave Wetzel, Vice-Chair of Transport for London

 

woman pushing baby stroller