Looking for Solutions to Poor Land Use
and Unfair Property Tax?
Albert L. Hydeman, Jr.
[At the time this paper was written in 1973, Mr.
Hydeman was Executive Deputy Secretary of the Department of Community
Affairs, Commonwealth of Pennsylvania. The published source is not
There are two pressing national concerns looking for a solution: (1)
how properly to develop and implement a land use policy, and (2) what
are the alternatives to the traditional property tax which has been
criticized as inequitable. A good many national, state and local
experts are presently in a dialogue on alternate approaches to solve
these two thorny issues. I would like to join this dialogue with an
idea that has thrashed around in my mind for some time.
Many years ago Henry George first articulated the hypothesis of a
single tax or a land value tax. Within the past few years a number of
well documented reports have been written which would lead one to
believe that the land value tax might be a viable alternative to the
property tax. For a number of reasons, which I hope to pose in this
article, I believe that it may also be the beginning of a method to
deal with the national land use problem.
Let us first take a good hard look at the method from which about 87%
of local tax revenues are derived -- the property tax. Property taxes
are assessed somewhat differently from state to state, so I will
confine my evaluation to the Commonwealth of Pennsylvania. Assessment
of property is done in most instances by the county government.
Assessment is most heavily based on improvements on the land and very
slightly on the land itself. Therefore, it places a heavy tax on past,
present, and future improvements, which has discouraged and many times
has prevented improvements.
On the issue of better housing, or better yet on the issue of slum
housing, the owners have a disincentive to improve properties. The low
taxes paid on low and substandard buildings allows them to reap a high
income on their minimal investment. Improvements cost them more in a
higher tax rate without necessarily increasing their income from the
investment commensurately. Likewise the owner of land on the urban
fringe can retain his holdings and allow it to increase in value while
developers move farther out to find land where cost is more
economical. In both of these instances land is not being used for its
highest and best use. Additionally, the use in one case contributes to
bad housing, and in the other, to suburban sprawl. These are just two
examples of the problem the property tax poses.
The property tax has a tendency to be inequitable in a number of
ways. Each county in the Commonwealth has a different method of
assessment and each uses a different ratio of market value. Therefore
two identical properties with identical improvements side by side
across county lines would be assessed and taxed at different values.
At a recent public hearing held by DCA, it was stated that in a single
borough property taxes varied from 7% of the market value to 21% of
the market value, despite the fact that the Supreme Court has held
such lack of uniformity to be invalid. Presently there is no mandate
that assessors be professional appraisers. These problems could be
overcome through a statewide uniform assessment procedure based upon
full market value.
However, a uniform procedure would still not change all of the
regressive features of the property tax.
(1) The lack of single standard real property value.
(2) The heavy tax on improvements which create an atmosphere of
inhibiting renewal or improvement.
(3) The low tax on unused land which allows the owner to hold the
land while public monies through development of the infra-structure of
roads and other public improvements increase his investment. His
investment is increased at a much higher percentage that the low tax
he pays on the land. In' fact, he makes his profit from subsidy
provided by other taxpayers.
(4) An individual holding the land as above, creates artificial
boundaries to development. Developers have to leapfrog these
properties to find properties to develop, thus creating suburban
sprawl and imposing additional costs to the taxpayer in development of
services to these far-flung developments.
(5) The property tax has another feature that is particularly
regressive. It is most inequitable to low and moderate income home
owners who represent the largest segment of the population.
Now how can the land value tax obviate some of these and other
concerns? First, let us define the land value tax. It is a tax on land
and land only based on the highest and best use to which that land
should be put. So, in a residential area similar land would be taxed
at the same rate per acre whether or not it is improved. This would
put pressure on the owner to develop or sell for development his
holdings as the taxes would be too high to allow him to hold the land
A number of studies indicate that through the use of land value tax
the tax burden would be more uniformly spread to all land owners, and
in many instances would provide a much broader yield of taxes. A
national conference held in 1968 published a report that indicated use
of land value tax reduces taxes on most individually owned houses.
This certainly would be desirable for it would give the home owner
more disposable income for property improvement, for which,
incidentally, he would not be penalized with higher taxes under land
Imposition of this form of assessment and tax could accomplish the
(1) It would exert pressure on the holder of underused land and
unused land to put it to better use immediately in urban and
(2) It would lead to more orderly development of urban and suburban
areas. Communities would develop from the core out instead of the
present leap-frog development caused by land owners holding lend near
the core for speculation.
(3) There would be a substantial saving of public funds, with more
density of development. The cost of roads, sewer lines, and other
public costs would be reduced end services such as police and fire
could be provided in a better and more economical fashion.
(4) It could reduce or eliminate the need for urban renewal subsidies
as we now know it as lend holders would be forced to improve
properties to have a proper investment/cost ratio. It would also
probably reduce the rates for privately owned utilities as a result of
density of development.
(5) Individuals or businesses would not be penalized with increased
taxes for improving their structures.
(6) Agricultural land would be taxed at a lower rate so that the
farmer would not be under pressure to sell land to developers. Today,
as the urban fringe spreads, agricultural land is taxed at an ever
increasing rate to a point that the owner finds it uneconomical to
farm and desirable to sell for subdivision.
9 (7) The land value tax would slow down land price inflation. This
tax would be regressive to those holding land for speculation. Through
its imposition it would tend to have land sold for development early
at a lower price. A side effect would be to lower housing cost.
These and other reasons would indicate that the land value tax may
lead the way to a land use policy and a method to eliminate the
It is quite evident that an immediate imposition of the land value
tax would be inequitable and unfair. However, it could be staged over
a period of fifteen years. It would take at least five years for the
Commonwealth to develop a statewide land use plan which would be used
as the basis for the land value tax. On the sixth year, a tax would be
levied on improvements and land on a 90% - 10% basis. Each succeeding
year improvements would be taxed at 10% less and the land at 10% more.
By the sixteenth year the land would be taxed at a value of its
highest and best use.
It is a certainty that there is not going to be a mad scramble to
impose a land value tax. I only hope that this short report will
generate discussion about this equitable and useful tax form. It is
important that we find an alternate to the property tax, as presently
imposed, as many communities have reached the point of no return --
they cannot tax properties under the current system at a higher rate.
The land value tax would certainly give the community a broader and
more equitable base from which to work. We must also find a way to a
land use policy before we use up our best agricultural land and our
open spaces for development. I propose that the imposition of the land
value tax will give us a leg up on better land utilization.