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Washington, DC, USA

SWOT Analysis - Potential for
Land Value Tax/Capture for Washington, DC

By Walter Rybeck, Director, Center for Public Dialog

Note: The policy has not yet been implemented in Washington but this SWOT is based on analysis and previous studies of the potential benefits.

STRENGTHS

Computer simulation studies have shown that Washington, D.C., would benefit greatly from LVT, either in its pure form as a land value tax with no tax at all on homes, apartments, office buildings and other structures, or as a more modest two-rate tax, with higher tax rates on land values and lower rates on improvements. Over three-quarters of homeowners would pay lower annual property taxes. The biggest percentage reductions would go to homeowners in the city’s poorer neighborhoods. As a general rule, both businesses and residential owners whose structures represent a large portion of the total property value would benefit, while those whose land value represents all or most of the value would pay higher taxes.

  1. Creating Affordable Housing. LVT and the two-rate tax shift property tax burdens off buildings and on to the underlying land values.
    • This would stifle the land price escalation that is by far the biggest factor in pushing the cost of housing in the District of Columbia beyond the reach of poor and many middle class families.
    • This would take the profit out of land speculation (holding land idle, plus the holding of boarded-up housing units) and induce owners to cater to the demand for affordable home prices or apartment rents. In other words, this reform shifts the financial incentives from land holding to land using.
  2. Generating Greater Use of Mass Transit. A Congressional study demonstrated that the Metro, Washington’s subway system, has generated billions of dollars worth of land values that would not have occurred in its absence. This study noted that the bulk of these socially-created values currently are pocketed by landholders who were clever enough or lucky enough to hold strategic sites near Metro stops. Unfortunately, these values were not being recaptured by the transit system that made the land more valuable.
    • Reduced fares, making transit more attractive, would be the result of using LVT to recycle land values spawned by Metro and other public transportation facilities to meet the costs of maintaining and improving the transit systems.
    • More transit-oriented development would result from the use of LVT to discourage non-use or under-use of sites around mass transit nodes. Thus more transit riders, and more desirable destinations for transit users, would be located along the transit corridors, making for far more effective and efficient use of the transit systems.
  3. Reducing Traffic Congestion. It follows from the previous point that there would be more compact development rather than sprawl into the suburbs and countryside. It is not rare for many people who work in Washington to spend several hours daily commuting from distant communities. Rationalizing land use patterns through LVT would greatly reduce reliance on cars and greatly increase the use of buses and trains.
  4. Improving Air Quality. The two previous points make it obvious that, as automobile traffic is reduced, air pollution would be reduced at the same time.
  5. Stimulating In-City Production and Jobs. Putting idle and severely under-utilized central city sites of Washington into appropriate development—which has occurred in every city where LVT has been applied—would bring businesses and jobs back into these locations. This would counter the present trend of urbanizing acres out in the middle of cornfields and stringing shops and industries along rural highways.

WEAKNESSES

A potential weakness of LVT or the two-rate tax is that, by changing the rules of the game, a number of reasons are often cited for not instituting this important reform, even though they may not be valid:

  1. “We’ve never done it that way.” Even though the present system has many disadvantages, there is often a general hesitation to change it. This tends to be especially true for officials who have relied on the old revenue system and do not want to rock the boat.
  2. “This will hurt poor land owners.” This argument tends to be used by rich land owners who don’t want to appear to be self serving. Actually, almost by definition, there are few poor owners of valuable sites. To the extent there are a few, there are practical ways of postponing their requirement to pay higher land taxes until their property is sold.
  3. “My vacant land isn’t ripe for more intense use.” This may be true in some cases, which is a good argument for using the two-rate tax which allows for the gradual shifting of property tax burdens to land from buildings. In places where this has been done, officials note that property owners hardly notice the change—yet the LVT incentives to put strategic locations to use often show that there were indeed latent demands for greater use of these vacant sites.
  4. “It’s against the law.” In some locations, this is actually true. Some state constitutions require that all property be assessed and taxed at the same rate.
  5. “That radical reform will ruin our city.” Powerful land speculators often generate unfounded public fears to shift the focus away from the benefits of a fairer, more logical and more productive property tax system.

Where state constitutions stand in the way, amendments are required to give localities the option—or perhaps the mandate—to use LVT.

Some state constitutions have a less severe restriction—requiring that all property of the same class be assessed and taxed at the same rate. In these cases, all that is needed is not an amendment, but rather a law designating that land and improvements are to be designated as separate classes of property.

There are no constitutional obstacles to LVT in Washington, D.C., having obtained a federal law (PL 93-407) permitting the city to tax land and structures at different rates. Yet it is still necessary to undertake an education campaign, both among officials and the general public, to overcome some of the sentiments expressed above.

OPPORTUNITIES

It is nothing short of scandalous that, in the face of persistent homelessness in the capital of the world’s richest nation, the District of Columbia, by latest count, had some 8,000 vacant lots and about 10,000 boarded-up housing units. Putting these sites and potential homes into service for the residents of Washington is a crusade waiting to happen.

Besides homelessness and excessively costly home prices and rents, Washington suffers from high unemployment, people living on wages too low for adequately supporting their families, and the flight of good jobs, businesses and taxpayers to outlying areas. These and related problems have spawned various advocacy groups seeking ways to ease these problems. Letting these groups know about the success of LVT in addressing these very problems in other cities and regions should open the way to making the District of Columbia a shining example of how a city can achieve well being and justice for all its citizens.

THREATS

Those in Washington who favor the current upside-down property tax are a small but potent interest group. They are by far the most generous contributors to local political campaigns. They profit handsomely from the present system and put pressure on politicians to keep it as it is. They benefit from the sad fact that too few journalists, economists and political scientists present the virtues of LVT in public forums. This is the challenge to those who are aware of the remarkable achievements of LVT in the places where it has been used.