The relatively low cost of holding on to vacant lots leads to underdevelopment in what are often prime residential areas.
An article by Konrad Putzier in the Wall Street Journal explains how the property tax system that keeps the cost of holding vacant land low contributes to the housing shortage plaguing most U.S. cities.
Putzier begins with the example of a vacant New York City lot, zoned for 1,500 apartments, that has sat empty for 17 years, with the owner paying minimal property taxes on the land. Across New York City, private vacant lots bigger than 3,000 square feet could yield around 858 million square feet of new housing and commercial space.
The article argues that low taxes on land and high taxes on buildings encourage property owners to hold vacant lots without developing on them, waiting for land values to rise. In regions like the Sun Belt, “The cost of inaction is usually low, particularly in suburban locations, where keeping a few cows on a lot allows landowners to qualify for massive property-tax breaks meant for ranchers.”
Proposals in Detroit, Philadelphia, and Richmond would reform those cities’ property tax systems to raise the tax on vacant lots and encourage developers to build. “Pittsburgh had a split-rate tax until 2001, and a number of studies found that it had more building activity than other Pennsylvania cities.”
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