Cities Subsidize Slums by Undertaxation,
Penalize Improvements by Overtaxation

Perry Prentice

[Reprinted from a special 84-page booklet on land,
House & Home Magazine, August, 1960]

Most cities are generating new slums faster than they can salvage and rebuild their old slums. Urban decay and blight are spreading into new areas faster than all the billions we are spending for urban redevelopment and public housing can salvage existing slums.

This is bound to happen as long as our urban tax system subsidizes slums by undertaxation and discourages improvements by overtaxation. Overuse of land is easy to stop by zoning, but in a free enterprise economy like ours the only way to stop underuse is to put the profit motive to work and make it more profitable to improve a property than to let it decay.

Says Housing Administrator Norman Mason: "There is a close relationship between our prevailing real estate tax system and our problems of slums, blight, and urban renewal. This question of taxes -- tax advantages and tax disadvantages -- is inextricably intertwined with the problem of community development." And Mason goes on to quote Professor Frederick G. Reuss of Goucher College that: "By overtaxing good housing we first take away much of the incentive to keep values up; but once an area is blighted we reassess it at a low value and thus pay a premium for poor upkeep."

More than 50 years ago Lloyd George warned the British Parliament that low-rent (public) housing bills "will never be effective until you tackle the taxation of land values." And about the same time Theodore Roosevelt said: "The burden of municipal taxation should be so shifted as to put the weight of taxation upon the unearned rise in the land value, rather than upon the improvements."

Heavy taxation on good new city apartments is one of the two biggest reasons for not building them today (the other reason is too-high land prices). Says the ACTION report on rental housing: "Among the costs which determine rent, real estate taxes are among the most important." In FHA apartments around New York City local taxes take four times as big a bite out of each rent dollar as the landlord's profit.

But low taxation on run-down old buildings and slums is one of the biggest reasons why blight is spreading. Said the HOUSE & HOME Round Table on money and inflation:

"Heavier land taxes would make slumlords improve their property to get enough added income to pay their added taxes"

Echoed the HOUSE & HOME-ACTION -- Pittsburgh Round Table:

"One big reason slums are so profitable and slum land prices are so high is that slumlords pay such small taxes per unit. They pay such small taxes because their buildings are so nearly worthless that they carry a very low appraisal; the worse the building the lower the appraisal and the smaller the tax. The average slum unit in Pittsburgh is taxed only $50 a year -- less than one-sixth of what the city has to spend for police, fire, schools, health, and other services in the slum areas (where the cost of municipal services always runs higher per capita than in better neighborhoods).

"Don't buy slum property for redevelopment without deflating its bootleg value -- even though the federal government stands ready to subsidize a big write-down.

"There is no more excuse for asking federal taxpayers to buy up slums at prices based on the outrageous profits of overcrowding, undermaintenance, filth, and misery than for asking diem to buy up a red-light district at a price reflecting the profits of prostitution. "If you increase the tax load on land and lighten the tax load on improvements, you could, at one stroke,

"1. Help deflate the bootleg value of slum property by making the slumlords pay more taxes and so make less profits;

"2. Help harness the profit motive to slum improvement, for you would, in effect, be giving partial tax exemption to any money spent modernizing or rebuilding the slums."

New York City subsidizes its worst slums by assessing the valuable land under fit-only-for-demolition buildings at almost exactly the same land-to- buildings ratio as the Manhattan average (37% land in twelve redevelopment areas, vs 40.6% average).

Says the Tax Policy Committee of the Citizens' Housing and Planning Council of New York Inc: "Any long range program for increasing and improving housing should have as one of its primary objectives the reduction of land costs. . . .The idea of exempting all improvements from taxation has much to commend it." And the Panuch report on Building a Better New York sums it all up in three sentences:

"The seemingly unstoppable spread of slums has confronted the great cities of nation with chronic financial crisis. . . .The $2 billion public housing program has not made any appreciable dent in the number of slum dwellings. . . . No amount of code enforcement . . . will be able to keep pace with slum formation until and unless the profit is taken out of slums by taxation."