A land value tax is a levy on the assessed value of land without regard to the value of any improvements located on the land. By contrast, in a single-rate property tax system, land and the improvements upon it, are taxed as one unit and at the same rate.

A land value tax regime can be implemented in two variations: 1.) a split-rate property tax system in which land is taxed at a higher rate than the improvements on the land; and 2.) a pure land value tax regime which imposes a property tax on only the value of the land and not to the value of improvements on the land.

Martin Wolf, writing in FT, supports taxing land value. Wolf argues in part that the moral case for separating the return on natural resources (i.e., land) from that on other assets is that the former pre-exist human efforts. The appreciation of land value, Wolf argues, was the result of the efforts of all those who contributed to making the city richer (Wolf notes London as an example), yet a large part of the agglomeration value of productive cities is captured by those who happen to own the land.

The Wall Street Journal reports that Detroit is mulling replacing some property levies with a single tax on the land value only. A 2022 study by the Lincoln Institute of Land Policy states that a move by Detroit to a split-rate tax system holds the prospect of stimulating economic activity as it can both discourage the holding of vacant land and encourage capital investment in structures and improvements. Among the study’s recommendations for the city is phasing in a split-rate ratio that taxes land at at least five times the rate of structures and improvements (i.e., a 5:1 ratio). Based on the study’s models, a 5:1 ratio lowers Detroit’s tax rate on improvements to 57.3 mills, close to parity with the Detroit metro region and with the statewide average millage rate (52.7 mills in 2018).

Economist Tyler Cowen is skeptical about land value taxation. Writing in Bloomberg Opinion, Cowen states that “[i]t’s not the tax system that drives high rents and NIMBYism; it’s the power of interest groups. Even with a pure land-value tax, that power won’t just go away. The more likely outcome is an intensification of conflict — and a higher cost of building.”

Last Updated on February 16, 2023 by Ramin Seddiq