Public Transit and Land Values
Henry Tideman
[Reprinted from Land & Liberty,
March-April 1978]
The problems of housing and mass transportation in metropolitan
centres are known to us all.
Automobile roadbed's built at public expense are dumping more and
more automobiles into the cores of our cities, choking the very
centres we intend them to serve. As a polluter, automobiles impose :a
damage bill estimated at several billion dollars annually, with the
highest concentration imposed on highly urbanized areas and their
immediate environs. Since the roads are built in urban areas and
largely used by suburbanites, the urban non-users of automobiles are
the most severely penalized. Increasingly large areas of otherwise
useful urban land have been pre-empted for these roads. Against this
subsidized competition, mass transportation survives with difficulty.
Massive urban housing programmes have contributed to the disaster by
resulting in not more but less total local housing. Whole areas are
devastated as if by war, as higher taxes on buildings, the
deterioration of existing housing stock and insufficient new, urban
poverty, poorer schools, racial prejudice, crime on the streets, the
flight of industry to the suburbs, etc. combine with the availability
of radiating expressways to reduce urban population as the more
affluent secede to the suburbs to drive in by car and those remaining
struggle valiantly against social problems that seem to be beyond
their control. Local buses and trains must travel as far, but now
serve fewer people.
The problems of urban housing and mass urban transportation require
not a pouring of more money and effort into the old approaches, but
some bold new re-thinking and reorientation. How can we encourage the
improvement of existing housing and the construction of more? How can
we make mass transportation not only as good as the expressways, but
irresistible, to woo urban and suburban riders alike back from their
private automobiles?
To achieve both of these ends at a single syllogistic stroke, this
paper suggests that all the costs of mass municipal
transportation be financed by local land-value taxation and that no
fares be charged. Space does not permit more than a limited
presentation of all the facets of this proposal; but enough ground can
be covered to suggest the interesting principles involved.
Let us look first at the effect on housing.
Our existing system of property taxation is singularly
ill-considered. If a man hits one of his neighbours over the head and
robs him, we can fine him. If, instead, he builds housing for his
neighbours, we fine him, too.
If a man robs another, we call the penalty a fine; when he builds
housing for others, we call it a tax. If he robs others, the fine can
be small; when he builds housing for others, it is substantial. If he
is accused of robbing others, he gets a hearing and may not be
convicted; when he builds housing for others, we give him no hearing,
and just send the bill for the penalty in the mail. And, finally, he
who robs his neighbour is penalized only once; he who builds housing
for his neighbours is penalized once a year, as long as the housing
remains. And then, to add insult to injury, after having obliged him
to raise the rent of his housing in order to get the money to pay the
penalty thereby creating a shortage of low-cost housing, we use some
of his penalty money to build 'other housing to compete with him,
while we complain that his housing is too expensive.
Housing, Transportation and Taxation
Land-value taxation, or site-value taxation as it is sometimes
called, is a desirable alternative, an encouraging, not a discouraging
system.
Proponents of land-value taxation point out that the value of real
estate is a combination of two very different kinds of things, with
very different sets of characteristics.
The value of a building is created by its builders, for if there were
no buildings, there would be no building value. An increase in the tax
on buildings, by tending to make building less profitable, slows
construction and creates that continuing built-in artificial shortage
of housing which, through the operation of the law of supply and
demand, permits the building tax to be passed on to the users. Only
when the shortage is great enough to make this possible, will and does
building resume.
The site value of land is, on the contrary, created not by the owner
of the title or by those from whom he bought it, but by its locational
advantages. Some of these advantages result from the presence and
economic activities of other citizens, and some from government
services like streets and alleys, water and sewer lines and treatment,
garbage collection, police and fire protection, parks, libraries,
schools and the availability of mass transportation.
A tax on land values, because it cannot in itself increase these
locational advantages, cannot be passed on to the land user in the
form of higher land rents or land prices. Since the tax is exactly the
same whether a given piece of land is vacant or has been covered by
handsome and useful housing, and does not fall upon and discourage
buildings, it does not create a housing shortage which would permit
the tax to be passed on.
Being paid by the landholder himself out of land rent, taxation of
land values tends instead -- other things being equal -- reduce the
titleholder's real or potential income from land and to lower land
prices, making land more easily available to builders. In fact, since
taxes on land values continue whether the land is used or not, land
value taxation, by making it less profitable to hold valuable land out
of use or in a poorly improved state, tends to induce the landholder
to use it well or sell it to those who are prepared to do 80. When it
is applied, the supply of housing is not decreased, it is increased.
Housing rents do not go up, they go down, as more competing housing is
built.
Intensive land-value taxation to finance mass transportation in
Chicago would literally populate the city, by making it unprofitable
for the landholders not to use the land well. There is little point to
running mass transportation past a collection of vacant lots of the
kind to be found in almost all of our major cities, with their
dropping population.
To finance mass transportation by the
deus ex machina of federal money is not only to unjustifiably
enrich those who hold title to the served urban land which rises in
value to absorb the benefit; it requires also that we forgo the
advantages of land-value taxation in pushing that land into use.
Land-value Taxation and Mass Transportation
Let us now look at Mass municipal transportation in the light of our
proposal that it be financed by land-value taxation and that no fares
be charged.
With a certain justice, it could be said, as a caricature, that our
existing housing and mass transportation policies have led to a
central hub of office functions, with emanating block-wide swaths of
urban land from which the original residents have been forcibly
ejected, to create expressways on which frustrated commuting drivers
move at a snail's pace morning and night, past well gassed noisy areas
of dubious livability.
If our policies had instead led to an equivalent area being covered
with green areas and good housing, those people wouldn't have to come
into the city; they would already be there. If our policies had
provided mass transportation for this more concentrated population,
they could get to their place of work with less time and less effort,
less expense, less waste of expensive materials and scarce energy,
less pollution for driver and city-dweller alike. (Hindsight is
surprisingly easy.)
Good transportation is one of the many factors -- like schools,
parks, streets, and police and fire protection-which tend to increase
land rents and land values. Men prefer to live and do business where
they are well served, other things being equal, and they are prepared
to pay higher land rent for that advantage. The usefulness of good
local transportation is reflected not in higher values of houses,
apartment buildings, or commercial buildings which can never sell for
more than the cost of a new building of the same kind, but in the
value of the underlying land. When the fares creep up, for example, to
the point at which citizens discontinue their accustomed volume of use
of the Transit Authority facilities, and the advantage of the
proffered transportation lessens, land values must tend to go down.
When the transportation is more useful, land values rise. Land values
tend to reflect the advantages provided by mass transportation,
sometimes in major degree.
Land-value taxation could conceivably finance the construction of
Chicago or other transit facilities. But could it replace fares for
financing maintenance and operating costs as well?
The prospect would seem to leave Stern and Ayres* unperturbed. They
suggest, "From this equilibrium picture, it seems reasonable to
conclude that an incremental transportation improvement will result in
time, money and stress savings to the user that are more than fully
reflected in increased rents and land values. Thus, if an improvement
is cost-effective in the limited neighbourhood sense, even the
short-term neighbourhood benefits appear to be sufficient to pay for
its
construction, operation and maintenance."
And this is without the land-value-raising proposal to permit free
riding, which would push land rents yet higher.
But why free riding? Because prepaid riding of this kind would make
intensive use imperative. Who would afford to throw away his, in
effect, free ticket and drive a car instead?
Would the opportunity to ride free be abused? Why should it be? And
what is abuse? We are not here talking about the use of taxicabs, a
relative luxury. We are talking about mass transit, next to feet the
lowest common denominator in the transportation field. Today. it is
all we can do to lure riders onto mass transportation. Free riding is
not only going to and coming from work, it is going to school, going
shopping, going to the doctor or dentist, going to the theatre, going
visiting. Free riding would permit the good use, during the rest of
the day, of the facilities required for rush-hour capacity. Free
riding would reinstitute the ease of movement which feet provided in a
smaller community. And, of course, since facilitated access to
commercial and service areas would automatically lead to a rise in
commercial land values as well as residential ones, land-value
taxation would recapture that financial advantage also to help pay for
the system.
All of this is to lay aside as secondary the savings resulted from
dispensing with the entire machinery of ticket selling and fare
collection, an unnecessary by-play. We do not as individuals pay the
policeman or the fireman for his services when we need them; to
require it could be disastrous. We do not daily send our children to
school with money in their fists to pay for the cost of a day of
education. Fare collection is mere custom, not necessity.
What is proposed here is not the subsidizing of mass transportation
as practised in New York City, from indiscriminate tax income. Those
who receive the advantage of free riding would find that land rent in
the served area would rise to absorb any advantage to them, even as it
does today; quite as it rises to absorb all the other site advantages
we provide; and potential riders would end up paying the landholders
in higher rents for even this added advantage. Land-value taxation
would then merely recapture this amount for the Transit Authority,
using it to pay for the costs of the transportation offered. Insofar
as the process increases ridership, this would operate like
subsidization; but unlike mere unthinking subsidization, this process
would provide the necessary financing from the pockets of those
served, while riding went on unabated. The landholder would be merely
a conduit.
One must look at the possibility that some of the land value being
taxed for the support of this system might not in fact have resulted
from this provision of free mass transportation. Land values do not
come with little labels which say that this part is due to good roads
and that part due to good schools, this part due to municipal garbage
collection and that part due to the provision of parks and
playgrounds, this part due to police protection and that part due to
fire protection, this part due to the fact that someone has built a
nearby shopping centre and that part due to the fact that someone has
built, accessibly, an office building or a factory where many people
are employed, to list but a few of the contributory factors. Is it
fair then, to collect land-rent money for mass transportation costs?
Land-value Taxation and Justice
To bring the question of justice into questions of taxation is, in
its way, a breath of fresh air, and the objection is welcome. But if
land values, as the question points out, are the creation not of the
landholder, but of the community as a whole, are they not uniquely the
proper source of needed community funds? If others than the landholder
have created these land values in their 'capacities as producers and
consumers, are not land values the source -- perhaps, even, the only
proper source -- to which the community ought to turn to government
income needed to pay for any purposes, including mass transportation
to serve us all?
Beyond this, what would the landholder lose by our replacing any part
or all of our existing government fund-raising system by land-value
taxation?
Every penalty upon activities we should be encouraging, whether the
construction of a building or the use of mass transportation in place
of driving, introduces an element of friction that inhibits the
activity and reduces land values. Consider, for instance, the
condition of a man who has an entirely average value home on an
entirely average value piece of land. Even if we were to take taxes
entirely off buildings and put them entirely on land values, we would
not increase his taxes or lower the value of his land. The tax on his
building would go down in the same amount that the tax on his land
rose. His total tax bill would be exactly the same as it was before.
The difference in this, the average case, would be in the future. He
could now paint this house and his taxes would not rise; he could now
add a wing, and his taxes would not rise. He could get a building
permit when he builds that recreation room in the basement or adds
that needed powder room, instead of doing it surreptitiously, and his
taxes would not rise. Naturally, he would do more of this sort of
thing. We would have removed what I call a friction, a penalty upon
activities. Production, not only in this particular relatively
insignificant case, but in the world of production in general, would
rise appreciably, with resulting social advantages. The value of our
example's land would not drop. It would be just as useful to him or to
anyone else as it was before; more, in fact. Land values would not
decline; they would rise, the land tax notwithstanding.
The case of the user of mass transportation is a parallel one. If we
really want a man to use mass transportation, why penalize him -- ask
for a fare-when he does? We add the element of friction, and he walks
or drives or stays home. We have discouraged him when we should have
encouraged him. Let him ride free, let the advantage of that riding
appear in land rents, and collect back the money by a 'tax on land
values, which will at the same time push land into use for housing.
Abolish the friction and watch the wheels turn.
FOOTNOTE
*"Transportation Outlays --Who Pays and Who Benefits?" in
Government Spending and Land Values, University of Wisconsin
Press.
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