Tax the land

One radical idea to solve America’s housing crisis.

By Jerusalem Demsas @JerusalemDemsas  Mar 4, 2022, 10:10am EST on Vox

A parking lot in Brooklyn is surrounded by buildings in 2016. A large condominium building has since been built where the parking lot stood. | Michael Nagle/Bloomberg via Getty Images

A six-word phrase keeps popping up on my Twitter feed: “Land value tax would solve this.”

In response to the inefficient use of land as parking lots. As a policy to help fund a universal basic income. And even (jokingly) as a prescription for the rise of virginity in young men.

The big question land value taxes help answer is: How can a government raise funds without distorting choices and possibly leaving people worse off? If you tax income, it provides a disincentive to work. If you tax property, it provides a disincentive to improve the physical buildings on top of the land. Sometimes the tax is intentionally disincentivizing an activity — think carbon taxes to reduce greenhouse gas emissions or so-called “sin taxes” on tobacco. But there are also taxes governments want to levy to pay for valuable services without changing behaviors too much (or at all).

One of the most straightforward solutions a land tax offers is to America’s housing crisis. That crisis is caused, in part, by the failure to appropriately use valuable in-demand land for its best purpose. Millions of people want to live in New York City, Los Angeles, Washington, DC, or Seattle, but local tax regimes actually punish people for investing in their property. When people improve their property — either by adding a new room or building an entirely new structure like a multi-story apartment building, they’ll pay higher property taxes.

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