De-Taxing Buildings to Make Them Efficient by The Geonomists
You want efficient buildings yet you tax them--improving them raises their tax liability. How rational is that? So shift the property tax.
The US Dept of HUD found the culprit behind slums: the property tax. it discourage owners from making improvements. Absentee owners especially did not make improvements that would not benefit them but only their tenants, and in marginal areas, the profit was to slim to motivate extra investment.
The Lincoln Institute found the benefactor behind high value suburbs around Melbourne Australia. Those jurisdictions enjoyed 50% more built value per acre compared to the bordering jurisdictions. How? They did not tax buildings but instead levied locations. That shift allowed owners to make all the improvements they wanted without incurring a higher tax. And it spurred owners who were leaving lots idle to get on the ball and build something beautiful. Better buildings typically are more efficient buildings.
What Melbourne did for their own reasons, any jurisdiction can do on behalf of the planet's atmosphere. Simply shift the property tax off buildings, onto land. Doing so not only aligns the bottom line with making improvements, it also provides extra wherewithal for making those improvements. That's because, as a tax on land goes up, the price for land comes down. Buyers and improvers need not borrow so much nor make such big down payments. Instead, they can invest in the building itself.
Residents whose buildings already are efficient can increase their contribution to cutting emissions, by using buildings less and the outdoors more. They'd have the time for that if they had the income for leisure. Extra money could come from their locality, as happens in Singapore.
That world-class city taxes land, spurs more efficient use of land, which activates the economy. That enables more people to prosper, which pushes up land values, which in turn overflows the public treasury. Thus the city is enabled to pay residents a dividend. Extra money in the pocket lets people spend more time in parks and on bikes and less time in houses and offices and factories, given the choice.
What actions do you propose?
Spur the Best in Building
Buildings aren’t better for lack of technology. Buildings are not all they could be due to politics. You want better buildings? don’t tax them.
Taxing makes buildings more costly than they need be. Inputs like design, materials, labor, hook-ups, and the stuff they sit on—dirt—don’t come cheap. Without those things, you won’t have a building. But without taxes on improvements, you’ll have structures of utmost quality.
Buildings can be better individually and collectively. When taller, it reaches wind for windmills. And when erected side by side within city blocks, they leak less heat.
One reform lets owners, investors, and architects put up high quality buildings and site them next to each other. Shift the property tax off buildings, onto land. Then owners incur no tax liability for improving structures yet do for leaving lots vacant.
Geonomics is a perfect opportunity for climate crusaders to make economic sense. Let’s perform our civic duty. Join a group, form one, or persuade one we belong to, and persuade neighbors to join in, to reform local taxes.
Technology, check. Psychology, uh …
The ways to improve buildings is pretty long: Better insulation. Better materials. Light tunnels. Capture the heat of lightbulbs, as did Thomas Edison. Air-to-air heat exchangers. Orient to the sun. Erect tall structures where the population demand for locations is itself high.
More passive cooling: draw in outside air through pipes that pass deeply through the Earth—an ancient Egyptian technique that in 120 degree heat made building interiors 80 degrees.
You can list more good ideas. Our imaginations can run wild. To employ them, however, our activism must run wild, too.
Pretty Up the Property Tax
The negative impact of taxing buildings is legend. When they were taxed, builders bricked up fireplaces, boarded over windows, and made houses skinny with less frontage. Owners left them unfinished and ugly to delay indefinitely tax liability.
The US Dept of HUD lays slums at the doorstep of the property tax. The extra cost discouraged owners from making improvements. Absentee owners especially did not make improvements that would not benefit them but only their tenants. In marginal areas, the profit was too slim to motivate extra investment.
The Lincoln Institute found the benefactor behind the lovely suburbs around Melbourne Australia. Those jurisdictions enjoyed 50% more built value per acre compared to the bordering jurisdictions imposing the conventional property tax. With zero tax on improvements, owners made all the improvements they wanted without adding to their costs.
Conversely, public recovery of location value—whether via tax, fee, lease, or dues—spurs owners who were leaving parcels idle to put up something beautiful. Better buildings typically are more efficient buildings.
In America, a few jurisdictions shifted their property tax off buildings, onto land, mostly in Pennsylvania. While Pittsburgh did, it was named by Rand-McNally America's Most Livable City back in the 1980s. It renewed itself without one penny of public subsidy.
Beautify a la Singapore
Shifting the property tax off buildings, onto land, not only aligns the bottom line with making improvements, it also provides extra wherewithal for making those improvements. One reason is, as a tax on land goes up, the price for land comes down. Buyers need not borrow so much nor make such big down payments. Instead, they can invest in the building itself.
Another reason is that the shift generates prosperity. To have income to pay their land dues (or tax or fee or lease), owners develop and redevelop. That attracts investment and creates jobs. It also infills cities and compact cities are efficient in many ways, including economic efficiency. With higher incomes, people have more to spend, including on good things.
A classic example. Singapore ranks at the top of several lists compiled by materialists—most prosperous society-wide, business-friendly, low-tax/high service, etc. That city-state also curbs car use and provides mass transit. Further, that world-class city taxes land and pays citizens a dividend.
Extra money helps make improvements affordable. Further, residents can increase their contribution to cutting emissions by using buildings less and the outdoors more. Then buildings could be heated or cooled only on demand, saving energy and reducing emissions.
A Citizen’s Dividend makes it possible for people to work less and enjoy leisure more. Some would spend less time in houses, offices, factories, and more time in parks and on bikes. That’d be great for their health and that of their environment.
A Sine Qua Non of Victory
What if advocates for climate stability could win efficient buildings without winning efficient taxation? What happens is the same thing that happens when artists and hipsters make a rundown part of town into a desirable place to live. More people move in. People with money move in. The place starts to look great, but rents and prices go up. The original inhabitants—those who created its character in the first place—can no longer afford to live in their neighborhood and move on to found the next cool place.
Gentrification makes many people resent and resist bettering buildings and neighborhoods, even improvements that’d mitigate climate change. Winning the debate to reduce urban emissions is made more difficult. It's a difficulty that can be avoided by sharing local land values.
Further, improving neighborhoods while not recovering the rise in location value would fatten mortgages. That further enriches the financial system now allowing and benefiting from an inefficient economy, one that emits too much byproduct into the atmosphere. Present financiers support this economy as is, defend it, and when mentioning any mitigation leave out any fundamental transformation that gets to the root of the problem.
Is the High Road the Only Road?
Rather than shift the property tax, some climate crusaders suggest merely exempting any improvements that raise the building stock’s efficiency. May that be a shortcut? Not really. Exemptions are a Pandora’s box.
Tax breaks go to insiders whose calls to politicians are answered immediately and on private lines. The property tax, as true with every tax, already exempts more than it collects. If your built value is not exempted, you’re paying for somebody else’s loophole.
Exemptions are not actually little loopholes but huge thoroughfares for the money of insiders. If ever you have enough clout to win an exemption, don’t waste it on that. Instead, go whole hog for fundamental tax reform and restructure the property tax.
Besides that political concern, there is the practical one of defining an improvement that is climate friendly. Nailing that is impossible, and complexity is the enemy of equity, since only those in the know can take advantage of the fine print. Better to exempt all improvements by exempting all buildings.
Further, exemptions don’t recover the socially generated value of land. That is crucial, too, for better buildings. It gets vacant lots developed and no longer useful buildings redeveloped; doing both cuts emissions.
Another strategy to get around shifting the property tax is to let the political storms continue to vitiate it but complement it with a property sales tax, imposed when the title is transferred from seller to buyer. Aspen Colorado, where a vacant lot goes for $10 million and more, does that and is the envy of many other towns with unaffordable locations.
Once again, however, that dodge fails to motivate efficient land use, nor does it exempt improvements. Neither the delayed tax nor the exempted tax is up to the task at hand. On behalf of the planet's atmosphere, proponents must shift the property tax.
A Winning Political Strategy
The above avoidance strategies are understandable. Most people love land and hate taxes. Owning land makes people feel secure. "Owing" taxes to an out-of-touch state makes people feel insecure. The hot buttons of owners must be respected.
Polls show the most hated tax is the property tax—a rational distaste since nobody wants to lose their home and governments can be overbearing and insensitive. To date, property tax "reforms" merely minimized the tax, starting with California's infamous Prop 13, later followed by many other states. Real reform has been rare.
Every place that did manage to tax land, not buildings, soon lost this reform. That's because it worked. It made the city or region more prosperous. People who prosper spend more money on locations. Real estate speculators see those higher values and want them for themselves. Enjoying closer ties to politicians, speculators soon get the reform repealed. All the reformers' activism went for naught.
One thing those short-lived reforms lacked and that Aspen’s title transfer tax had was a tangible benefit. Aspen earmarked its raised revenue for affordable housing. The proposal qualified almost all working families, even a doctor making six figures a year. That new tax cum benefit for the entire populace passed at the ballot box easily.
Just as the promise of more affordable housing made an extra property tax politically palatable in Aspen, and a future dividend made a tax on oil extraction passable in Alaska, and the reality of lower taxes on one's labor and capital made a land tax a winner in Singapore, so again could sharing of rents be won in other jurisdictions, too. The key is to guarantee money in the pocket.
Push the Left Buttons
Residents, voters, and legislators find the idea of handing over the annual rental value of their location to their community (long hand for land dues or land taxes) more enticing when other psychological factors are in alignment, too.
- Regional land value must be presented as a hefty windfall, similar to how Alaskans view the value of oil under the tundra.
- The value of land must be shown as a regional value, a region to which all residents belong—the old pride of place.
- The fact that the value of every location is a product of the three most important things in real estate—location, location, location—must be stressed. That is, the value of one's land is not due to the owner but due to nature—things like a great view—and due to society—things like population density, and no lone owner can claim responsibility for density.
Promise people a share of the value of all the land and resources in their region. Rather than cling to the returns from their lone location, residents will be jumping on board. A groundswell would ensue.
Get Everyone to Pull on the Same End of the Rope
The way to win a tax shift proposal is to not propose it. Instead, propose a Resident's Dividend or a Share of Regional Value or a Universal Housing Voucher. Of course, proponents will have to explain how to fund it. That is when one mentions shifting the property tax off homes and improvements, onto locations. Or, replacing the property tax entirely with a tax on site value or with an annual deed fee or with land dues calibrated to the value of one's location. The actual mechanism for recovering the socially generated value of land is less important than disbursing the collected rents back to the populace.
As the body politic strives to expel fewer pollutants into the planet’s atmosphere, don’t force owners to improve their land or buildings. Instead, create a context in which quality development makes economic sense. That requires replacing the usual property tax with sharing land value. Winning local legislation requires advancing not a loss (a tax) but a gain, the resident's dividend.
Fortunately, a global benefit—incorporating appropriate technologies into building—can be won locally, where change can occur more quickly. Local residents could see and live in more beautiful and efficient buildings. And create a model for the rest of the world to follow.
Who will take these actions?
Elected bodies, ultimately, must legislate the needed reforms that will create a new bottom line, one that rewards those who build structures in the most efficient ways, and with the most efficient results, possible. If the bottom line tells owners to build less efficient buildings, no matter what the law tells owners to do, the financial pressure on owners will push many to find ways to skirt the law. That's the way of the world -- numbers on paper trump words on paper.
Of course, it is officeholders who will have to reform the flow of public revenue and shift taxes off buildings, onto locations, As old Senator Everett Dirksen said, "When I feel the heat, I see the light." Hence, elected officials must hear from a critical mass of voters. And voters must hear from likable, informed, and articulate activists—just as is so with any reform movement. And voters, in turn, must hear from a movement made persuasive not just by its passion but also by its sensitivity to all the needs of the populace.
Organizations with other missions would get involved in the movement to reform the flow of public revenue. They would invite speakers to present at their meetings and co-sponsor events open to the public. They would inform their members and support the eventual legislation.
Business would involve itself similarly plus play unique roles. By getting on board, they would market themselves as good neighbors. And by owners of buildings, they would also upgrade those buildings.
Each year, every jurisdiction modifies its taxes and spending. Some of those changes are due to insider influence, some due to grassroots influence. In the past, Earth-friendly "geonomic" reforms have been passed into law both ways.
One fortunate aspect of this way to reduce harmful emissions into the atmosphere is that it can be won locally. Advocates need not invest all their efforts into making a huge organization, nor wait for the rulers in distant capitols to act. Victory would be right around the corner.
Where will these actions be taken?
These actions will be taken mainly locally. People who want to drastically cut emissions into the atmosphere would include the proposal of a dividend based on the health of Earth in every discussion about climate change. Opportunities are legion.
When talking to friends, family, neighbors, co-workers and fellow students. When collaborating with other organizations. When composing articles and interviews and scripts for videos and speeches. When in meetings and conferences and in the media. When at the social events where movers and shakers meet and relax and listen to the input from advocates. When lobbying business and elected officials. In all venues where information spreads, where ideas spread, where change takes roots.
As advocate win the shift of the property tax locally, they create a foundation for revenue reform statewide. There they can win the shift of taxes off sales, onto extraction of resources. Building on statewide success, next they can win the shift of taxes off wages, onto pollution, into the air and water and soil, too, in national legislatures. Ultimately, success at the federal level will lead to success globally. As they say, "Think globally, act locally." For, as they also say, "All politics is local politics.”
How much will emissions be reduced or sequestered vs. business as usual levels?
Buildings are not the biggest culprit, from what I've read. But to the extent that they are a major factor contributing to harmful emissions, that factor can be hugely reduced. And motivating owners to make improvements by not taxing them plays a key role in creating efficient buildings.
To envision the gain possible, look at efficient buildings like the home and headquarters of the Rocky Mountain Institute. Even way up there in that cold elevation, it has energy bills measured not in three figures for a month but in two figures for a year. One could rationally expect such results from all buildings.
First, however, we must stop penalizing owners for making improvements with the higher taxes we would then demand that they pay. Don't tax what you do want. Do tax what you don't want. Duh. And to win such a tax shift, combine it with a dividend to all residents, to have a critical mass of supporters. Most voters own homes and most buildings are homes. You need them on your side.
What are other key benefits?
Improving buildings means not just greater efficiency but can also mean greater beauty. Living in such buildings, people feel better. And they develop a sense of pride.
Further, in-filling a city makes it more walkable and livable. Walking makes residents healthier and creates encounters with neighbors, which builds community. Both create a pride of place, which inspires people to win even more reforms.
When a jurisdiction recovers the value of locations, then land no longer appeals as an object of speculation. Owners use their lots productively. That attracts investment, generates jobs, and lets more people prosper.
Receiving a share local land values lets residents feel less economic pressure. They can carve out some leisure, enjoy friends, family, neighbors, and nature. Again their health improves.
If people are walking in their compact region they are not driving. Note transportation is probably the biggest assault on the environment.
What are the proposal’s costs?
Outside the usual costs of doing what it takes to raise public awareness, there are no extra costs. Buildings always depreciate and need maintenance and improvements. Metro locations in growing regions always rise in value and need buildings that yield a higher return. So owners are always re-building anyway. The shift of the property tax merely spurs owners to rebuild in ways that are beneficial to them, to their community, and to their planet. Once the building and the city is made more efficient, then the new bottom line is pure savings and profits.
With the requisite political will, the property tax could be shifted over night in order to reward owners who make improvements to their buildings. Because property taxes are so low in the US, there would be no reason to shift them gradually. Yet to make them fit into owners' budgets, the tax on land (or fee or dues) could be collected monthly, like mortgages.
To amass the requisite political will would take as long as any reform takes. Inform the public. Create a ground swell. Lobby the legislators. Overcome resistance. Win the reform. How long that takes basically depends on the enthusiasm and commitment of advocates. However, because the playing field would be the local arena instead of the national stage, victory could come much more quickly. Most new ideas take a few sessions of the legislature, so count on a couple years.
Once the the property tax has been shifted, owners are motivated to improve their structures rather quickly. When Johannesburg taxed land, not buildings, owners continually kept lots at best use, rebuilding the city in 20 years, plugging the heat-leaks of buildings. And once residents begin to receive a share of regional site values and carve out more time to spend outdoors, energy use will plummet and with it the emission of harmful byproducts. All that could happen locally in a few more years, still well under a decade. The reform could spread globally afterwards, again depending upon political will. Given the needed public support and awareness, the reform could last forever.
What similar proposals have been made to this contest, I don't know. However, beyond the contest several similar, "geonomic" proposals regarding revenue reform have been made. The carbon tax is similar. So are other taxes on "bads" such as "sin taxes". So are others tax shifts from goods to "bads", such as reducing taxes on businesses who fund a particular public good. Also similar are shifts in spending of public revenue, from the bank accounts of insiders to the pockets of everybody, such as de-funding sprawl or logging roads or military contractors and instead disbursing a dividend to the citizenry. These other proposals have their constituencies who are likely candidates to becomes supporters of the shift of the property tax to curb harmful emissions and then to recycle the raised revenue locally.
LUSHT, Kenneth M., Site Value Tax & Residential Development; Lincoln Institute Monograph Series, 1992. This Chairman of the Department of Insurance & Real Estate at Pennsylvania State University
Dr Mason Gaffney, PhD, emeritus, US Riverside
“Smart growth benefits municipal budgets” — Smart Growth America
“Singapore Budget 2015” — Asia One, 2015 Feb 23
“States attack property taxes” — Tax Foundation, 2006 August 24.
Where Tax Reform Has Worked — Progress Report