Aid to Housing for the Poor

Elizabeth Read Brown

[Reprinted from The Christian Century, 23 October, 1968]

CHURCH leaders and church members are to be commended for their efforts to help break down racial prejudice and foster both, local and national legislation, to the end that Negroes may have equal opportunity to purchase housing that "will meet their needs.

However, other kinds of effort are called for. This was brought home to me last spring when Columbia, Missouri, the city where I live, was preparing to vote on an open housing ordinance. The local ministerial alliance strongly supported the proposed ordinance; it adopted a statement expressing its approval and urging church members to vote Yes "as an eloquent expression of our belief in the Christian concern for justice and equality for all people." (The proposed ordinance did not pass.) Meanwhile George Brooks, highly respected Negro leader in Columbia, pointed out that open housing legislation can help only that small percentage of Negroes who are financially able to buy homes in better surroundings. This means that poor Negroes, and poor whites as well, must continue to live in slums.

The problem is especially disturbing because new slums are constantly forming. It was nearly ten years ago that Robert C. Albrook of the Washington Post & Times Herald wrote that "new slums are growing faster than old sums are removed." And the process continues undiminished. Still our mayors and other local officials turn to Washington for help in solving the problem, urging ever increasing sums for slum clearance, urban redevelopment, subsidization of housing and rents. They do so without considering the basic cause-and-effect relations which have sparked the evils they seek to cure. And the demands they present necessitate ever higher federal taxes, on poor as well as on rich.

Other than through federal taxation, the only way the problem can be solved is by resort to free private enterprise. And free private enterprise is hobbled by our traditional local tax policy. For instance, when one remodels or improves his home or rental property the assessor raises the tax assessment. The more rundown a building becomes, the lower is the tax. It has been stated many times by experts that the most profitable property is slum property. Why? Because our tax system takes away incentive to improve buildings. Not only is the man who builds a new home or improves an old one penalized for something which is socially desirable, but the owner who lets his buildings become more slumlike or who holds land out of use is rewarded for following a policy that is socially undesirable. Our local tax system is at fault: it penalizes the first owner and puts temptation in the way of the second.

According to a May 1968 report there were at that time over 14 million vacant lots in American cities. If to that number is added lots uneconomically used, the total economic waste is seen to be staggering. Since these lots are mostly held off the market for speculative purposes, their presence creates the artificially high prices buyers must pay for lots on which they propose to erect buildings. As a result we have urban sprawl, which increases the cost of supplying electricity, gas and such public services as garbage pickup.

Testimony from the Experts

The high prices city lots often command are primarily the result of community- and geologically-produced values which the owners have not created. When a city builds schools or a state builds a road, the lots in the area increase in value - but not because of anything an individual has done. A corner lot in the business section of a city is more valuable than one of similar size in the center of the block. And both are more valuable than lots on the outskirts or in the residential sections of the same city. Lots in a seaport city may sell for a great deal because of the geologically created value.

As quoted in a St. Louis newspaper last February, that city's comptroller, John H. Poelker, declared that the need for slum clearance and urban redevelopment exists because of the way we levy taxes. He advocated taking "the profit out of slums" and giving "new vigor to the city's redevelopment efforts." He pointed out that since at present "most of the real estate tax is on structures ... the more rundown a building is, the smaller the tax." He referred to "many rotting buildings in premium locations in the downtown area, where the tax on property in no way reflects the value of the land." Those structures, he said, "should be either demolished or substantially improved, but because they are underassessed the owners can keep them rundown, waiting for a prospective buyer with a lucrative offer. But if a property owner in the downtown area or in a mid-city neighborhood improves his property, he gets a tax increase."

In cooperation with the Milwaukee tax commissioner, Professor Mason Gaffney of the University of Wisconsin at Milwaukee conducted a tract-by-tract study for the Urban Land Institute. His research showed that "it would be profitable for private enterprise, without any subsidy, to tear down and replace practically all the obsolete buildings downtown if the property tax were put on the valuable land they cover" instead of on the buildings.

Robert Maynard Hutchins, former chancellor of the University of Chicago, has commented: "Today's property tax promotes almost every unsound public policy you can imagine. It encourages urban blight, urban sprawl, and land speculation. It thwarts urban rehabilitation, building investment, home improvement, and orderly development. The remedy is absurdly simple." He urges removing the tax on improvements and increasing the tax on land values.

Innovations Elsewhere

A system of taxation like that advocated by Dr. Hutchins has been in force in the Australian state of Queensland for 78 years and for a shorter time in New South Wales. In fact, Tasmania is the only Australian state in which no city or district has taken taxes off buildings and other improvements and increased them on land. Among the Australian cities having a land-value tax system are Brisbane and Greater Sydney. Most of the reports on the success these Australian experiments have enjoyed have appeared only in British or Australian publications; hence we in this country have had scant opportunity to be aware of this challenging way out of our present urban housing difficulties.

In November 1965 the Australian magazine Progress reported on the building in South Melbourne prior to and following the adoption, by vote of the property owners, of a system of land-value taxation, with buildings and other improvements tax-exempt. During the first six months after the new system was adopted the money invested in new building and in expenditures for alterations and additions to houses was more than twice that of the average in the preceding six-month periods. Alterations and improvements on commercial buildings were about 50 per cent greater. The total value of new office building construction was four-and-a-half times the previous figure. And the total value represented in construction permits for industrial buildings more than tripled.

In New Zealand more than 70 per cent of the cities have adopted this system. Recently the state of Hawaii took the first step by reducing taxes on buildings and increasing them on land. In Africa several cities - among them Johannesburg, Nairobi and Livingstone - have adopted similar systems.

In Canada the system operates, for instance, in Regina and New Westminster; the latter city has taxed improvements one-fifth as high as land for well over 50 years. A recent letter to my husband from a member of the Canadian Parliament, a highly respected elder statesman, contained some pertinent passages. I quote:

... From 1919 to 1923 Ontario was ruled by a farmers' government headed by a knowledgeable premier. That government passed a permissive act such as is in force in Pennsylvania, and one town, Fort Erie, took advantage of it. That town witnessed the building of more houses in {he short year or two in which an easing of house taxes was in force than had taken place for many years previously. Then the Tories won a provincial election and at once abolished the permissive act.

Since then the municipal councils of all our major towns and cities have been greatly concerned about the shortage of housing accommodation, have been "fighting" the housing problem and are oh so sorry for the poor people who live in slums, or one-room apartments, but never a word about the exemption of improvements or the taxation of land values. …In Toronto we have seen building lots multiply in price until a house-of-his-own is beyond the reach of all but the most favoured of earners, and the victims of the system say never a word.

We in Canada read of the poor of your country "marching on Washington" to insist that Congress do something, and not a word about the only "something" that would bring any real relief.

In our country, as well as in others which follow our tax system, local real estate taxes are placed on land, buildings and other improvements, with the smaller proportion on land. Thus construction of buildings or improvement of existing ones is discouraged and desirable land is held speculatively out of use. Result: higher cost of land, lack of good low-income housing, more slums.

Incredible Oversight

Why have not the National Commission on Civil Disorders and other groups looking into the causes of riots and the plight of our cities pointed out the enormous potential in the kind of tax reform that has for generations been tested in a large part of Australia and in several other countries? When the effects on those towns and cities which follow our tax system have been compared with the effects on cities and towns which have changed to taxing land and exempting improvements, it has been shown repeatedly that in the latter areas (1) less land is held out of use, (2) industries are attracted, (3) there is more building, (4) job opportunities are greater, (5) it is easier to become a homeowner. All of these are results achieved without subsidies.

What initial steps can be taken if we desire to enjoy such benefits in the United States? Let me propose three: (i) If it is insisted that there must be subsidies in order to achieve quick results and provide adequate low-income housing, Congress could make the subsidies for any city conditional on reform of its local tax policy. Then such subsidization would not have to be continued endlessly. (2) Congress could put this tax reform into effect in the District of Columbia as a "pilot project" to demonstrate to a limited degree what incentive taxation can do. (With Congress taking the lead, local governments would have a stronger motive to reform their tax system in this direction, and in cases where the state constitution would have to be amended, it could be done more easily.) (3) If religious leaders and church members come to realize that here is a way - termed by one congressman "the most realistic approach to the revitalization of our cities" - to one of the demands of the Poor People's Campaign, they could urge their congressmen to take the action necessary to implement the proposals. To this end, education and discussion are vital.