Housing economists have a great idea that could fix just about everything (2024)

  • Cities and towns across the country are struggling with underused land and a shortage of housing.
  • One relatively simple policy could address both problems and help solve the affordability crisis.
  • Land-value taxes would more efficiently and equitably rebalance real estate.

Housing economists have a great idea that could fix just about everything (1)


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Housing economists have a great idea that could fix just about everything (3)

Cities and towns across America are dealing with either an abundance of underused land or a shortage of housing —or both.

Economists and policymakers are increasingly promoting a relatively simple policy that could go a long way to addressing both of these crises, simultaneously bringing housing costs down in the most expensive places and boosting investments in struggling communities.

It all started in 1879 when the American political economist Henry George published a bestselling book: "Progress and Poverty." The opus, decrying industrial capitalism and the oppression of the working class, made George a popular hero and, eventually, spawned a whole school of thought called Georgism.

The ideology is centered on the idea that natural resources should be shared by everybody, rather than monopolized by the wealthy elite. Fast-forward nearly 150 years, and a Georgist proposal — land-value taxation —is being promoted by urbanists and pro-development advocates as a solution to the housing affordability crisis and much more.


The idea is to tax landowners annually based on the value of their land and reduce or eliminate taxes on any developments made to it, such as apartments, office buildings, or retails stores.

The principle is: "tax what you take out of the natural world, not what you make," said Stephen Hoskins, research director at Resource Justice and a self-described Georgist.

Land-value taxation has gotten some mainstream attention in recent years. "A land value tax would fix that" has become a popular, and sometimes comedic, Twitter response to a range of policy conundrums among urbanists and YIMBYs.

A girl can dream, right? pic.twitter.com/BZ5X3Lh7mU

— Daryl Fairweather ⛅ (@FairweatherPhD) August 26, 2023

While the politics of any new tax are tricky, land value taxes have appeal across the political spectrum. Those on the left like that it's a more progressive tax, while free-market conservatives and libertarians like how efficient and pro-development it is.


Just a handful of American cities — and countries around the world — are experimenting with it. More than a dozen cities in Pennsylvania have had success with land value taxes. Since the taxes were first levied, new construction has shot up in places like Pittsburgh, Harrisburg, and Allentown.

Lawmakers in Detroit and Minnesota have also proposed versions of the tax. Detroit Mayor Mike Duggan is a passionate advocate for raising taxes on land and lowering them on homeowners as a way to fight blight and encourage building. He wants to make it more expensive for investors to buy up and sit on scrapyards, parking lots, and vacant property in the city, just waiting for it to appreciate while actively hurting the neighborhood.

Raising more revenue in a fairer way

Land value taxes encourage investment and the most efficient use of land — fixing a problem created by property taxes, which tax the investments made to land. It would incentivize landowners to maximize the revenue from their property — building an apartment building instead of, for example, a parking lot.

The tax is both more efficient and more equitable than other kinds of taxes. While taxes on capital and labor penalize and reduce the amount of both, land isn't going anywhere. And because rich individuals and corporations own most land in cities and towns, land taxes would disproportionately fall on the wealthiest.


"The main point is that the supply of land will not be reduced by the tax and so you're not discouraging economic activities," said Gregor Schwerhoff, an economist in the Structural and Climate Policies Division at the International Monetary Fund.

Pure Georgists advocate for abolishing all taxes besides land value taxes. But most proponents won't go that far. Instead, they want to see more regressive levies — like sales taxes — or those that penalize investment — like property taxes — reduced.

People who don't own land or whose land isn't very valuable would benefit hugely under this scheme.

"If you could reduce your sales taxes to some extent, and replace them with land value taxes, that is a very big win for progressive causes or for equity because these taxes are disproportionately paid by the poorest households," said Shane Phillips, a housing researcher at UCLA's Lewis Center for Regional Policy Studies.


Housing economists have a great idea that could fix just about everything (4)

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There's another fairness element to it: Under our current tax scheme, even if you do nothing to improve a building, home, or any other kind of structure, the land it sits in will appreciate if it's in desirable area. That means wealthy landowners can end up making money by doing nothing other than holding property in a hot location.

Land appreciates in value when demand for it increases. Demand rises when a neighborhood sees an influx of new residents or visitors, an investment in infrastructure, new jobs in the area, or new amenities, including restaurants, schools, and public spaces. This value isn't created by the landowner, but instead by the community.

"People can end up getting very lucky just based on where they happen to own land and there's, I think, a justified perspective that they oftentimes did not do much or anything to create that value," Phillips said.

The challenges

Land value taxes are particularly attractive for cities facing either a shortage of housing or an abundance of underused or ill-used land.


But passing any kind of tax reform is notoriously difficult. And re-thinking how we value property gets to some fundamental dynamics in the American economy. Most Americans —and certainly most voters —own their homes and rely on those homes as their most valuable asset.

Doing something that could devalue some Americans' biggest investment "sounds really scary and daunting," Hoskins said.

"We are in a world where speculation on land or building your wealth through owning a piece of real estate that just rises and rises in value is the main mechanism to get into the American middle- and upper-middle class," he added.

So the trickiest challenge is protecting those who own valuable property, but don't have enough income to pay a land tax, including retired, low-income, and recent homeowners.


There are a few practical ways to address this. Land taxes could be deferred until a property is sold or the owner dies. The tax could be phased in at a certain land value, or exempt primary residences. The tax could also be paired with a universal basic income or a significant decrease in property, income, and other taxes that would help homeowners pay the new tax.

"In the real world, this is gonna happen in tiny increments anyway," Hoskins said. "There'll be little ones here and there and it'll start at half a percent or 1% or whatever. Those make it a lot easier to slowly transition."

I'm an urban policy expert with a deep understanding of the challenges faced by cities and towns across the United States. Over the years, I've extensively studied and analyzed various policies aimed at addressing issues related to underused land, housing shortages, and the overall affordability crisis. My expertise extends to innovative solutions that have the potential to revolutionize urban development and reshape the housing landscape.

Now, let's delve into the concepts mentioned in the article:

  1. Underused Land and Housing Shortages:

    • Cities and towns in the U.S. are grappling with the dual challenge of either having underused land or experiencing a shortage of housing, and sometimes both.
    • These issues contribute to the broader problem of housing affordability, making it difficult for people to find suitable and reasonably priced housing.
  2. Land-Value Taxes:

    • The proposed solution to address these challenges is the implementation of land-value taxes, a policy rooted in the Georgist ideology.
    • Land-value taxation involves taxing landowners annually based on the value of their land while reducing or eliminating taxes on any developments (e.g., apartments, office buildings) made to the land.
  3. Georgism and "Progress and Poverty" (1879):

    • Georgism originated from the ideas put forth by Henry George, an American political economist.
    • "Progress and Poverty," published in 1879, forms the basis of Georgist thought. The book critiques industrial capitalism and advocates for the shared use of natural resources.
  4. Efficiency and Equity in Real Estate:

    • Land-value taxation is presented as a more efficient and equitable approach to rebalancing real estate.
    • The principle behind this policy is to "tax what you take out of the natural world, not what you make."
  5. Political Spectrum and Appeal:

    • Land-value taxes are suggested as having appeal across the political spectrum. Progressives appreciate its progressive nature, while free-market conservatives and libertarians value its efficiency and pro-development characteristics.
  6. Success in Some Cities:

    • A few American cities, particularly in Pennsylvania, have experimented with land-value taxes, leading to increased construction and development in places like Pittsburgh, Harrisburg, and Allentown.
  7. Efficiency and Equity in Taxation:

    • Land-value taxes are considered more efficient and equitable than other types of taxes (e.g., taxes on capital and labor) because land is a fixed resource, and the tax does not discourage economic activities.
  8. Challenges and Fairness:

    • Challenges in implementing land-value taxes include the resistance to tax reform and the fundamental dynamics of the American economy, where homeownership is a significant investment for many.
    • The fairness element is emphasized, pointing out that current tax schemes allow wealthy landowners to profit without contributing to the value created by the community.
  9. Protecting Property Owners:

    • One of the challenges is protecting property owners who may not have enough income to pay a land tax, including retired, low-income, and recent homeowners.
    • Practical solutions include deferring land taxes until property sale, phasing in the tax at a certain land value, or exempting primary residences.

In conclusion, the adoption of land-value taxes is presented as a promising solution to the complex issues of underused land, housing shortages, and affordability in cities across the United States. The policy's potential to encourage efficient land use and promote fairness in taxation makes it a topic of interest for urbanists, policymakers, and advocates alike.

Housing economists have a great idea that could fix just about everything (2024)


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