Does it make sense to penalize someone for constructing a quality building, which is beautiful, functional, and serves the community? If your answer is ‘No,’ and unless you live in a select few cities in the US, you and your municipal government have something to argue about.

The vast majority of municipalities in Canada and the US collect from a property taxation system that penalizes the construction of quality buildings, encourages land speculation, and ultimately makes moving to the suburbs an attractive proposition.

Although a topic not usually discussed amongst friends, we need to understand what our property taxation strategy is doing to our communities and see what improvements we can make.

Where as the federal government has access to income tax dollars, the municipal and regional governments rely on property taxation as their primary source of cash flow. In most parts of the US and Canada tax is assessed ad valorem, which means a set percentage (or millage) of the assessed market value of the entire property, including both moveable objects (buildings) and non-movable (the land itself).

James Kunstler, an outspoken critic of contemporary urban planning wrote in his book The Geography of Nowhere (1996), “This system of property taxes punishes anyone who puts up a decent building made of durable materials. It rewards those who let existing buildings go to hell.”

Kunstler is arguing that taxation on buildings is a problem that leads to poorly constructed buildings, and even flight to the suburbs.

Once a building is constructed an assessment is conducted. If the building is well built and constructed of quality materials, the owner will pay more tax than if their building made of low quality materials. Also, an owner who upgrades a building, which increases its assessed value, is penalized by the increase in tax they will pay from that point on.

Kunstler sees taxation contributing to urban sprawl because citizens have no incentive to invest in existing buildings. New homes built in the suburbs do not carry this penalty.

Our current taxation system benefits suburban homeowners in two ways. First, the consumer is usually placed on newly parceled agricultural land, which is lowly assessed for taxation because it is far from the urban core and other amenities. Second, developers maintain a low assessed value of the property by controlling the quality of their building materials. Consumers see the opportunity to own a new house while paying little property tax. This leads to low density communities constructed of bad materials.

Land speculation is another practice encouraged by our current property taxation system that pushes people to the suburbs. David Bollier explains this connection in his book “How Smart Growth Can Stop Sprawl.” Bollier writes that leaving urban lots empty creates an artificial scarcity of usable land, which in the free market drive up the price of property. If the future gain on land price surpasses the owners tax expenditure on the property, they are motivated to leave this land fallow.

The lack of affordable rental housing near the urban core is the result of this land speculation. With no usable land available, people are forced to look outside the city centre for living space.

Both Kunstler and Bollier agree these ill effects are rooted in the taxation of buildings. To counter these effects a tax reform which offers an incentive for building improvement, and which would penalize land speculation, is required.
Site-value taxation is one such reform. This system only taxes the land and not the building.

Site-value reflects the potential use the land could be put towards. If the land resides close to desirable facilities, such as parks, shopping districts or public meeting areas, the assessment will be higher. This system offers no disincentive to build with quality materials or reinvestment in old buildings. As well, owners are motivated to realize the value of their buildings in the city core, as they will be taxed equally for a parking lot as high-density condos. This ensures the buildings will be put to use, which dissuades land speculation and potentially opens up housing in the urban core. All of which culminates in a lively, dense, urban core with buildings that service people’s needs.

Although site-value taxation was the brainchild of 19th century American economist Henry George, only a few American cities have embraced it to date. Pittsburg and Harrisburg, Pennsylvania began this two-tiered taxation scheme in the early seventies and have seen a drastic rejuvenation of their urban cores, driven by a boom in availability of affordable housing in the city centre.

Your municipal government controls property taxation. If you would like to see a change in the look of your city, speak to your local representative, start talking about it, make it an issue local politicians notice. Property taxation has a real impact on the look and character of our cities. We have the power to face and change these policies instead of simply running to the hills.