Understanding causes of the many problems communities face is complex and overwhelming. The way communities grow is a primary factor in shaping most of these problems. Growth patterns are like a herd of cattle stampeding toward a cliff. The policies and perceptions that are the rules of growth are extremely difficult to redirect, even when the big picture shows impending disaster.

What does it take to encourage investment in older areas of communities? Why do some property owners refuse to maintain their property? Has your community seen historic downtowns demolished one building at a time in favor of surface parking? Why do some property owners sit on their property and refuse to sell until surrounding investment raises the value of their land? What are the impacts of these growth practices on the cost of public services? How can we turn things around?

Uncovering policies that result in negative outcomes is among the first steps to improve the future and assure opportunity for generations that follow. Many problems of sprawling growth patterns are being documented and thematic solutions are on the rise. Occasionally someone identifies a core issue that is equivalent to discovering the cause of a disease. The method of taxing land is one of the policies that have shaped communities. If you take a look at the property tax system and analyze its impacts you realize we are encouraging, even rewarding actions that are shaping negative outcomes for our communities. James Howard Kunstler has evaluated two approaches to taxing land. He explains that current policies of taxing building improvements on land are a core factor shaping negative impacts of current growth patterns. Taxing improvements on property is a deterrent to making quality improvements to property. The better alternative is taxing land based on location and proximity to public services.

Not so sure you believe? Find out more about the history of property tax in the United States and more explanation from Kunstler’s A Mercifully Brief Chapter on a Frightening, Tedious, But Important Subject . The following are a few excerpts from this paper:

“Our 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. It favors speculators who sit on vacant or underutilized land in the hearts of our cities and towns. In doing so it creates an artificial scarcity of land on the free market, which drives up the price of land in general and encourages even more scattered development, i.e., suburban sprawl..."

“This happens because we tax buildings much more heavily than the land under them… The higher the buildings value, the higher the tax. Under this system, a rational person has every reason to put up crappy buildings that will not be highly assessed, or he has every reason to let his property run down, or build nothing at all. This is a major reason for the current desolation of American towns and cities.”

“The alternative to this is to tax land itself and not the buildings on it. The criteria for assessing the value of land minus buildings is based on its location or site. If it is one block away from Main Street, for instance, it is considered to have high site value because it is very close to other things that people like to be near, public utilities, the post office, civic amenities such as parks, museums, libraries, schools, other businesses and other services, and so on. The theory behind this is that in human society land derives value from both explicit public investment (sewers, water lines, streets), and from the aggregate of private human activities that go on around it. This is termed socially created value.”

You can also learn more about this issue at New Rules and at the Lincoln Institute of Land Policy and their Property Valuation and Taxation Library.

Reforming our property tax system could become an important step for Competitive Communities positioning to advance quality place, brainpower and innovation strategies. Several communities in the United States are shifting to site valuation taxation. Pittsburgh and Harrisburg Pennsylvania stand out as implementing a two-tiered system that is gradually shifting taxation from buildings to land. Sydney, Australia is another city that has seen tremendous benefit from a land valuation system.