Property taxes are two taxes stapled together: one on the land, one on whatever gets built on it. Put up an apartment building and the bill goes up. Pave the lot for parking and it stays low. It discourages building and rewards land speculation. The answer? Tax the buildings less and the land more. The idea of a “land value tax” goes back 150 years, but implementing it today involves navigating tricky constitutional issues. In this episode, I talk with Greg Miller of the Center for Land economics about the rationale for such taxes, and with Kitty Klitzke, a Spokane, Washington council member, about the difficulties of putting it in practice in a real city.
Have you ever driven through an American city and wondered why so much land near and around the urban core remains either undeveloped or covered in low-value uses like parking lots? Many people point reflexively to zoning — and lord knows I have done many pods over the last few years on the evils of restrictive zoning — but there’s more to it than that. You also need to look in the tax code.
Property taxes are determined by a mix of two values: the value of the land and the value of the structures on the land. One perverse outcome of this arrangement is that if you own a vacant lot and put a building on it, you raise your property taxes — the higher the value of the building, the more economic activity or community benefit it produces, the higher your taxes. In effect, property taxes, as currently constructed, penalize building and reward leaving land underdeveloped. It’s perverse. That’s why even many cities that have reformed zoning still suffer from this problem.
The obvious solution, which is gaining momentum in cities and states across the country, is to shift the tax burden away from the buildings, to the land. The total property tax bill can remain the same — i.e., the reform can be revenue-neutral — but the resulting land value tax (LVT) will penalize landowners who leave their lots empty and reward those who build. It will incentivize building on the highest value land near urban cores.
The idea is simple enough, but the details get pretty hairy, pretty quickly. So we’re going to dive into some of those details.
With me today, I have Greg Miller, co-founder and director of the Center for Land Economics and a driving force behind the resurgent discourse around land value taxes, and Kitty Klitzke, a city councilmember who is pushing for adoption of a version of a land value tax in Spokane, Washington. I’m going to talk with Greg about the conceptual rationale behind land value taxes and Kitty about the challenges of getting them implemented on the ground. I’m super excited for this one. Let’s get into it.
Timestamps:
00:00 - Introduction
03:22 - Henry George and the case for taxing land
08:12 - How property taxes work now, and what a split rate changes
11:26 - Land value taxes and upzoning as complements
15:18 - The Pennsylvania record and the reassessment problem
18:51 - Vancouver, and why homeowners outlast the policy
24:03 - Estonia, Singapore, and the Scottish Islands
26:53 - Washington’s uniformity clause and the building exemption
33:18 - Kitty Klitzke on twenty years of Spokane infill
43:27 - What Spokane needs from the state legislature
45:25 - Single family homeowners and the Division corridor
48:34 - The assessor objection
52:45 - What the Spokane modeling shows
59:31 - The plan for next session
1:01:44 - Virginia, Kentucky, and cross-partisan momentum
Resources:
People & Organizations
David Roberts (Bluesky - Twitter)
Volts (Website - YouTube - Instagram - Apple Podcasts - Spotify)
Greg Miller (LinkedIn - New America)
Kitty Klitzke (Spokane City Council - LinkedIn)
Company & Industry News
Most Spokane homeowners would pay less tax under reform proposal. Here’s who would pay more
Everybody works but the empty lot: Some Spokane leaders eye property tax reform to promote building
Books & Articles Discussed or Related
Related Volts Episodes
Why climate funders don’t fund housing policy, and why they oughtta
What YIMBYs are learning from their victories across the country
Text Transcript:
David Roberts: With no further ado, Greg Miller, Kitty Klitzke, welcome to Volts. Thank you so much for coming.
Greg Miller: Thank you for having me.
David Roberts: All right, Greg, let’s start with you. In the name of keeping my introduction tractably short, I did not get into Henry George. But why don’t you briefly tell us who Henry George was and what his basic insight was and why that basic insight has come back.
Greg Miller: Yeah, Henry George is a political philosopher, a journalist, whatever you want to frame him as from the nineteenth century. And in the eighteen nineties, he lands down in San Francisco and he’s asking himself this question. It’s the industrial ages. We are producing things faster than ever, and this is supposed to bring about all this progress, all this prosperity. And he’s asking himself, why do I see so many people living in such terrible conditions with so much poverty? And so he writes a book called Progress and Poverty. And what he realized is with the industrial age, we had discovered a new frontier. That frontier is everybody moving to an urban core. There’s all of a sudden agglomeration effects around living near a factory. And because everybody wants to live near a factory, the people who own the land are the people who are able to benefit the most because they can charge increased rents. And as those factories become more productive, as we discover assembly lines and new methods and mechanisms to make factories more productive, so too do the profits and so too do the wages to the workers. And all of that means that the rents can go up even further because now more people want to be near that factory that pays higher. And we see this today, right? We see this in San Francisco and our big cities. That’s where we see the highest agglomeration and the highest value of land and the highest rents that people pay for units that, you know, you could go out into a rural area and have a house eight times the size of. And so Henry George, the political philosopher who understood that land was a big deal, and he invents what he calls the land value tax. Why don’t we tax this value, this locational premium in our cities? And this wasn’t a novel idea necessarily. I mean, Adam Smith, Thomas Paine talked about variations of this policy, but he really popularized it and becomes one of the most notorious figures. He actually runs for mayor in New York City, marches down the streets and has a huge parade. He ends up finishing second. But he’s this figure that has lasted and his ideas have proven themselves throughout the past century and now the resurgence here is his idea around land value tax, that I think we’re seeing right now a huge resurgence of.
David Roberts: Georgism, he’s even got an ism named after him. Yeah. And I think the key thing for people to understand there is if you’re sitting on this piece of land, if you own this piece of land and people develop around it, you know, the factories come in and then the public invests in infrastructure and people invest in schools and libraries, all that stuff raises the value of your land, even though you didn’t do anything. You’re just sitting on it. And so basically that public investment is going to your private profit. I think that was part of his insight.
Greg Miller: Yeah, that’s exactly the way I understand it too, right? Is that land is, people sometimes get confused. What do we mean by land, right? What we really mean is location. And nobody creates location. It’s a natural resource. I mean, we have fifty trillion dollars of land in the United States. That’s our largest natural resource. And nobody created that land. And then when we go to New York City, you don’t create that value. Everybody around you does, the roads, the people, the schools. And so I think that’s where sometimes what we say is land value return. We’re returning the value of land to the community that makes that land valuable. Right. And we use a tax as the mechanism by which to do that. But yeah, I think that’s where you sometimes hear this concept of land value return.
David Roberts: One other thing to say is the reason a lot of economists love this, even conservative economists, is the sort of basic economist insight that when you tax something on the margins, you get less of it. If you tax income on the margins, you get less income. If you tax sales on the margin, you get less sales. If you tax carbon on the margins, you get less carbon. But you can’t get less land, right? You can tax land all you want and you can’t reduce the supply of land. So Milton Friedman was a fan even. He called it the least bad tax. So George wanted all taxes on land. He wanted that to be the sole tax. I don’t think anybody today is proposing that. I mentioned this briefly in the intro, but tell us sort of how property taxes currently work, about this balance of values and how kind of how they’re assessed.
Greg Miller: Yeah, and good news for the United States, we have a property tax system. The European nations, some of them can barely relate, right? We have quite a robust one. And a property tax includes two taxes in one. We add together the value of a land for each parcel and the value of buildings for each parcel. And we add those together and we apply one tax percentage to those. We say, okay, your total market value is five hundred thousand dollars, we’ll tax it at one percent. But this is hiding two taxes in one, and there’s no reason we need to do that. We can split those taxes into a building tax and a land tax. And a lot of our assessment jurisdictions we already value both separately. And we can decrease the building tax at a time when we’re asking how can we get more development? How can we help solve the housing shortage? And then we can increase the land tax at a time when we’re asking how can we have less land speculation, fewer vacant landowners, less surface parking lots in our downtown corridors. And I think that’s the idea that When we’re talking about land value tax nowadays, it’s really important to say we’re talking about shifting taxes from buildings to land. We’re talking about decreasing the building tax. We’re not trying to raise taxes overall. Some people are, some people aren’t. For me, it’s not a question of how much money the government takes in. I’ll let the city government decide that or the county government decide that. It’s a question of how we collect that money. And how we collect that money is an extremely important question for how our urban environments get built. And that’s why I think property taxes are very important for this conversation.
David Roberts: Right. And so like I said, the basic insight is if you shift that ratio, if you reduce the building side of that tax and increase the land side of that tax, you are raising the penalty for sitting on an undeveloped piece of land, basically. And you are reducing the penalty for building. That’s the idea. It is around the margins you’ll get more building.
Greg Miller: Yeah, and to put this tangibly, if you look at a downtown and you go drive through your downtown and you’ll notice that there’s either a vacant lot or a surface parking lot somewhere there. And you’ll notice that there might be an apartment complex and a hotel and a mixed use apartment complex with a storefront right next to it. And if you look at how much taxes the vacant lot pays today under the current property tax system, it’s paying usually 10 times to 20 times less than the apartment complex sitting right next door. So the person who decided to you know, invest in their property and build this downtown is paying 10 to 20 times more in taxes. As we shift that tax burden from buildings to land, we’re saying these sh should be paying pretty similar. We should stop penalizing that development. So the vacant land would pay more compared to our current system. But that’s just because that’s the way that we’ve set up our current system, we’ve penalized that development. And so that’s the ultimate impact of this shift when you look, you know, when you drive through your downtown, that’s what you should be thinking about.
David Roberts: And I guess maybe one other thing to say is that the effect of this would be felt most intensely on the most valuable land. Right. Which which tends to be pretty mechanically the closer you are to an urban core, more or less. So so the natural effect of this would be to push more building toward the core.
Greg Miller: Precisely. This is the infill development we’re looking for.
David Roberts: Right. And so say a brief word. Some of the questions I got, I threw this out online as I tend to do and got a bunch of questions. And one of the questions I got is sort of, how does this relate? What is the sort of a relationship to of land value taxes to kind of the YIMBY zoning, upzoning, all that stuff that, you know, I’ve covered on previous podcasts that the YIMBYs want to do upzoning around transit, all that kind of stuff. Are they Complements? Do they need one another? Can they stand separately? How do you look at that relationship?
Greg Miller: Perfectly complementary. In fact, thank you to the YIMBYs for their past decade of activism. I don’t think we would be seeing all the states considering land value taxes today without that urbanist movement and that grassroots momentum. When we upzone, when we make it easier to develop, land becomes more valuable. There’s good studies on this, you know, when you do transit-oriented development upzoning, you see all of that land become a lot more valuable. And because it becomes more valuable, Folks can still sit on that land. I mean, we’ve seen this out in DC with some of the developments around WMATA. I’m from the DC area and we’ve seen folks just sit on vacant land. Why? Because they can wait 20 years and still double their money on that vacant plot of land. And so when you do this upzoning and when you do this transit investment, the next question is, okay, how do we ensure that this windfall that we’ve created, this huge amount of money that we’ve created for private landowners?
David Roberts: Right. We’ve created value. Again, I just gotta put an exclamation point on that. When you upzone and when you develop land, you’re creating value. Right. And so how do you distribute that value is the question.
Greg Miller: Yes. Yeah. And then how do you both distribute that value while also incentivizing the upzoning to also materialize? And so I think that question is, we’ve raised the land values, but we also want to encourage this person to develop the multifamily house rather than sit on it and wait for their neighbor to develop first because then they can sell for more later, right? And I think this is all about incentives and the questions around incentives. And so I view these as perfectly complementary. We work with a lot of YIMBY chapters, a lot of housing policy, housing abundance folks, and I think there’s a reason why these are policies that go hand in hand.
David Roberts: Is there anything to say about the order of operations or like if you’re a city contemplating these things, is it better to do one before the other or does that matter? Like is there a kind of a sequence? Is there a sequencing? Anything to say about sequencing?
Greg Miller: Yeah, there is. I think some folks would argue, you know, if you implement the split rate right before and upzoning, then that could be good because then you capture some of that windfall you’ve created right away and then are also immediately incentivizing that development. But I also think that you can upzone and then a year later pass some sort of policy of a land value tax shift and still see those good benefits. And so, I think that the housing solution is not a one size fits all solution. And so cities should do what’s politically feasible, but also should be working on this problem from every different angle, right? And a lot of our cities, you know, I believe upzoning is really important in a lot of our cities, but a lot of our cities are asking themselves, you know, we have this surface parking lot downtown that technically could be developed into something, but it’s not. So is zoning really our problem? And zoning still is. If you universally upzoned it, it’s a good thing. But a lot of our cities aren’t San Francisco and aren’t New York City and aren’t going to see all that development right away. And so we also have to ask ourselves the incentives question. So I think, you know, whatever the order is, these are complementary policies, but they’re also policies that can both help to get at the solution independently.
David Roberts: Mm-hmm. There are some examples of this happening in the wild. Not a ton, but some. And so Pennsylvania, for instance, let’s talk just briefly about Pennsylvania. Pennsylvania is one of the rare cases where the state, there’s state law that basically says if cities want to do this split rate, i.e. Increase the land tax, reduce the building tax, they can. So presumably we have some examples on the ground, some experience. What have we learned from Pennsylvania’s record?
Greg Miller: Yeah, Pennsylvania has had twenty plus cities implement what we call split rate tax, again, taxing land more than buildings. And those cities, there’s good economic evidence from those cities. Now, the economic evidence comes from the nineteen eighties to the two thousands. I mean, the economic studies come after, but this is when the implementation is. So take some of this with a grain of salt. But you saw the cities, these post-industrial cities like Pittsburgh, which is the largest city to have implemented one from 1960 to 2000. Really was able to continue to build and survive this post-industrial decline of a lot of neighboring cities a lot better. And so that economic evidence suggests that you saw an increase in housing infill development, more units per acre, you saw more permitting, you saw less vacancy, less vacant land, and you saw an overall increase in property values. So this is the gist of the economic literature from the Pennsylvania experiment. Now, some people ask Well, Pittsburgh got rid of it in 2000. The question is why? And so I always have to preempt this with it’s kind of ironic that Pennsylvania is the one state where this has been done, because Pennsylvania also has some of the worst reassessment policies. Some of their cities right now have assessments dating back to the nineteen sixties.
David Roberts: And when we say assessment, this just means that when we talk about the value of the land and the value of the buildings, somebody’s gotta go in and determine that. That’s not an obvious number. There’s some judgment involved and some expertise involved, and that’s what assessors do. And that is also governed in some ways by law and procedure.
Greg Miller: You know, if you want to be impressed by your local government, drive around and notice how many independent properties there are. And tell yourself, wow, the assessor assesses all of those properties pretty frequently. And that’s a hard task, right? So the assessors have a hard task and they’re oftentimes, you know, very low staffed to do this very, very hard task. But if you’re Pennsylvania, you avoid that by just never doing it. Now Washington State, for instance, does that every year, right? And so Pittsburgh does this huge reassessment. They finally, you know, the first time in twenty, thirty years, they’re like, Okay, what is each property worth now? And of course you saw massive increases. And so there was a huge populist backlash against the reassessment. We’re seeing this today. In Syracuse, New York, they did a reassessment and they voted against their reassessed values because there was a backlash to the increase in tax burden. And the assessor’s not at fault. The assessor’s just telling you what the market tells you. But Pittsburgh got mad, they were wondering why they’re doing this weird split rate system. They said the skyscraper should pay more. Let’s get rid of this weird system we have. And so it is ironic that Pennsylvania is the one state with this, considering they don’t mandate reassessments, while other states do mandate annual, triennial, you know, once every four years, once every three years, once every year, reassessments on all properties.
David Roberts: Yeah, we’re gonna get back to assessment in a bit when we talk about Spokane. But one other example that I want to briefly discuss, which I found really fascinating, is Vancouver, BC. Vancouver, BC, back in the early 20th century, had like a fully Georgist system. Land was the only thing taxed in Vancouver. And what you’ve seen in Vancouver is not This sort of one-off backlash that got rid of it. What you saw in Vancouver, BC is over time the land value tax got kind of whittled away. The building tax grew over time. And then eventually, I think it was in the 80s, it finally went away entirely. And then, ironically, as anyone who lives in Vancouver knows, they proceeded to have a giant affordability crisis. Through lack of building. But as I understand it, and tell me if I’m wrong, what happened in Vancouver is that homeowners, the ones who, you know, get penalized by this over time more and more, as the cycle goes on, are also an incredibly powerful political constituency. And the people who benefit From this policy, as is so often the case with public policies, are sort of diffuse. They don’t really know they benefit from it. Some of them are future renters, so they don’t even know, you know, they’re not organized, et cetera. Is that accurate about what happened in Vancouver? And I guess my question would be: how do you how do you prevent that from happening? How do you prevent sort of the people who see the penalties organizing to fight it and the people who benefit, you know, being diffuse and unorganized.
Greg Miller: That’s my understanding of Vancouver and probably the extent of my understanding of the Vancouver situation is similar to the way you’ve described it. I will say I’ve had people reach out to me from Vancouver recently, trying to revive the land value tax in the same way that people are reaching out in Pittsburgh and you know, even the Pittsburgh Gazette’s editors came out and said we need to revive our land value tax. So it’s curious that these cities are now looking back towards what they once had. Of course there’s winners and losers with these policies. I think one of the things we’ll get into in a second with Spokane is sometimes these shifts are actually beneficial. You see a tax decrease for single family houses because single family houses are sometimes good uses of land in a lot of our cities. In San Francisco, a single family house is not a great use of land. But in other parts of our cities, the single family houses are decent uses of land. Probably not as good as row homes, right? But they’re not as bad as vacant land or surface parking lots. All of this is relative to each other, right? And so I think that there are some ways that you can get rid of some of the boogeymans around this policy. It’s like, of course single family homeowners are going to hate this. And then you do the data analysis and you say, well, they decrease in taxes, so why are they going to hate this? And of course this is a progressive policy, so industry would hate this. But actually this is a pro development policy. So why would you know, development hate this. But then you do have a landed class. You have landowners. And those landowners want to get that money from land, right? And so we see this in Florida with there’s a huge push to abolish property taxes that ended up just being a $250,000 exemption for homeowners. Why? Because homeowners as you said are the class of people who vote and who have political power. And they want more wealth. They want more money. And so the homeowners are going to vote for these types of things to the detriment of renters, at the detriment of commercial businesses, small businesses, who help make the economy work. And so I do think that there’s an aspect of that, but I also think that there’s an appetite to push back on that. And we even saw in Florida, you know, hosts of the Charlie Kirk show come out and talk about how this was a massive wealth transfer from Gen Z to The boomers. How this is just creating a ton of money, right? And so
David Roberts: The land. And there’s an element of like killing the killing the golden goose, right? Like the reason the land is valuable in the first place is I mean, this is something I come back to again and again. Like cities, agglomeration, as you said, creates value. That’s why the value exists. That’s why the land is valuable in the first place. And if you kill agglomeration and you, you know, disincentivize building in urban cores. You’re killing the golden goose that gave your land the value in the first place. It’s long term self destructive.
Greg Miller: Definitely. And so to answer your question, there’s pushback. There are people who don’t want this to happen. But there’s also reasons why a lot of people should support this and there’s a lot of boogeymans around the policy that I think are inaccurate. I think you can get a lot of folks in support of a revenue neutral shift to land.
David Roberts: Final background question is just, is there any other country, are there international examples of this happening or experiences to learn from, or is this a US centric kind of problem?
Greg Miller: No, there are. Estonia has a national land value tax that has been implemented for a while. They just did a massive reassessment at a national scale. And so you know, there’s a German state that just implemented a land value tax. I think that there’s a lot to look towards. But a land value tax is not the only way to do what we’re trying to accomplish. What we’re saying is that the public creates value and should regain and recapture that value and then return it to the community. Singapore does this through owning all of the land. And having variable rate leases. And so these variable rate leases effectively operate as a land value tax. And Singapore has seen tremendous prosperity and pretty good sustainable financing because they own eighty percent of the land and are able to do variable rate leases on top of those lands. And so there are a lot of different examples of the sort that you can look at to realize that this isn’t a crazy system that nobody’s done. There are folks
David Roberts: So you lease the land, it gets built up, it creates public value. That public value goes to the state and the state reinvests it in schools and infrastructure, et cetera, raises the value of the land more, gets more revenue, invests more revenue, you can get a cycle going there, ideally, instead of the state invests, raises the land value, and then a bunch of landowners get get rich.
Greg Miller: Precisely. And one of my favorite examples of this recently, we have a fellow, Elle Griffin, who also does a lot of her own great work. She’s been studying the Scottish Islands. Scottish Islands bought themselves, some of them. And the way they were funded was through the Scottish lottery. The lottery had a provision that a lot of the proceeds would go to a national land bank. And so residents would come together, the island of Stornoway, for instance, they bought the island, but because they own the island and there was a huge, massive land trust. They also had to provide for themselves. They had to provide the businesses, the schools, the infrastructure, their own housing. And so they had this incentive though, because they owned the trust and they benefited from the trust to also make it attractive. So they built a golf course and that golf course is now part of the Scottish Open, I believe. And so you know, you create these good dynamics where cities want to improve, they want to be better. Because the residents all gain from that. The city gains from that. But in this case it’s a trust. But you know, it’s the same principle. I find it funny that a lottery system funded this, but there’s things to take away from that model.
David Roberts: Yeah. Okay, so let’s focus in a little bit on an example in Washington. Let’s talk about Washington State where I live. One of the barriers to this in Washington State, as I understand it, this is true in many state constitutions. The state constitution has what’s called a uniformity clause, which basically says that taxes on property must be uniform and that all real estate is one class, so you have to have one rate, one rate on all classes. So legally you cannot tax the land at one rate and buildings at a separate rate. Legally you cannot do a straightforward land value tax. So then how do you get around that?
Greg Miller: Yeah, the other way of shifting taxes from buildings to land, what if we just exempted all buildings from taxation? The only thing left to tax is land. And so we actually do this in a lot of cities. We have random exemptions for multifamily. Washington State has a multifamily tax exemption. But we’re saying, what if we exempted everyone from their building taxation? What if when you build an ADU in your backyard, you’re not taxed on your improvement? And so the Washington state constitution gives broad authority to the state legislature to determine what property can be exempt from property taxes. And so that also gives the state legislature authority to say cities can choose to exempt portions of every building from taxation. So what this would look like in principle is the state passing this law and then a city like Spokane saying, we want to exempt fifty percent of every building from taxation. And what that does is it decreases the taxable base. If you otherwise had $200 million in property value, now you only have $150 million you could tax. But you need you still need to get $50 million to fund your, you know, your city government. And so you raise your tax rate from 1% to 1.2, 1.3%. Effectively what that’s doing is that 1.3% is now being applied to land. And so this is sort of a goofy way of going about it. But what we’re doing is we’re saying buildings are exempt from taxation or a portion of buildings are. And so we’re gonna raise taxes, the tax rate overall. And that raised tax rate is mostly going to apply to the value of land. And it effectively accomplishes the same thing.
David Roberts: Right. So it’s revenue neutral. You’re still raising the same amount of tax revenue, but less of the taxes applied to the buildings, more of the taxes applied to the land. It’s sort of a backdoor land value tax. One other technical detail in Washington, in our wisdom, we have a rate cap, a cap on the amount you are allowed to charge property taxes. And an increase cap or a cap on the rate that you’re allowed to increase property taxes. Talk just a little bit about how those constrain movement here, constrain what Washington cities can do.
Greg Miller: Yeah, parcels in Washington State, a piece of property cannot be taxed at more than one percent of its full market value by typical means. So a city council can vote among themselves for a property tax. The state has a property tax, the county has a property tax that they vote for among themselves, among the elected leaders. And the constitution caps the total amount of that across all of the different levels, the state, the county, the city, when you add those all together, you can’t go over one percent. And additionally, if the city this year collects fifty million dollars, next year it can’t choose to collect a hundred million dollars. It can only raise its total revenue collected by one percent every year. These are citywide or district wide restrictions. It’s different for listeners who know about Prop 13 in California, where that’s parcel level. That means that each parcel can’t increase in taxes more than one percent. California has it a lot worse, right? Parcel level means that you’ll have two properties sitting next to each other. One will be taxed at $2,000, one will be taxed at $100,000. And you know, they’re both five million dollar homes, not paying their fair share because they’ve been owned for five decades. That’s a different question, but importantly in Washington State, the city can vote for levies. And this happens frequently, oftentimes for school districts. And when they vote for levies, those voted levies do not apply to either of those restrictions. And so there are a lot of voted levies, both in Seattle and in Spokane, that are not restricted by that. And so that just means that the people who are actually residents there need to vote in favor of that levy increase, which does happen. So although it’s unfortunate that you have some of these restrictions, it’s also democratic in a sense. When I talk to conservatives, I say this is the most beautiful tax because you know exactly where your tax is going, right? And in some states like Washington State, you quite literally vote for it. And so if you’re gonna want any tax, this is a great one. But yes, there are restrictions in Washington State, but voted levies get around some of those.
David Roberts: Yeah. And I guess it’s good that we can get around it, but I just have to say for the record that it is crazy. But if you have a city that experiences big rapid growth, you would think, what a good thing. We can now get more tax revenue and invest more in our city and get in that virtuous loop. And instead you have a city that grows really quickly and you are capped in the amount you can raise property taxes. So Almost by definition, you are starving the cities that are growing the fastest. It’s an insane thing to do. But that’s constitutional, I guess, and very difficult to undo. But as you say, if the voters levy it on themselves, they can get around those caps, which is like Not an easy thing necessarily to get voters to vote to raise their own taxes. But if you can talk them into it, you can get around these rate caps. So, Kitty, sorry, Greg and I nerd out a little bit there, but I want to talk to you now. You have a long background in land use work, land use advocacy, worked for Futurewise. Done a lot of transit campaigns, et cetera, et cetera. But as I understand it, you had not really heard about land value taxes until relatively recently, until after you were on the city council. So maybe just tell us briefly about kind of your history with land use and how you came to find out about this and why it appealed to you.
Kitty Klitzke: Yeah, well, that’s not exactly true. It’s been brewing for me for a little over twenty years. About twenty years ago, I, Futurewise is a statewide organization and I was in our Seattle headquarters walking on Capitol Hill with a coworker, and we were walking by this old Scientologist church that was being renovated into condos. And the developer happened to be there and very frustrated and somehow knew who we were. And he came out on the sidewalk and sort of accosted us and said, Look at this. The Seattle tax system is making it very hard for me to develop this beautiful building of lasting value and turn it into something that continues to be lasting value. Meanwhile, you’re making it super easy for people to build these corrugated steel articulated. Crappy multi-family buildings that in 10 or 15 years are gonna you’re gonna look at them and say, these are so 2000s. And they’re not gonna have any like lasting character or value. He said, your tax system is incentivizing this. You wanna know why no one builds with stone or brick anymore. It’s because you make it so expensive for us and so cheap for people to build with crap. And it kind of came out of nowhere. He led us toward the building. It was beautiful, but he was really struggling. We didn’t even know if he was going to be able to complete the project. But it stuck with me. I had no idea what to do with it. And then over the years I had been involved in Spokane and my job in participating in these kind of steering committees that were supposed to figure out infill for Spokane. Because we outsized our urban growth boundary early on, shortly after the passing of the GMA. So we had this enormous urban growth boundary and a sprawl problem and an infrastructure and traffic problem and not the most affluent tax base to address all these problems. So we as a city, they were deciding to try to get it together and strive for infill and try to grow up and not out and be a little more prudent, protect our remaining forests and farmland, all the things. Sounds good. So we tried upzoning. We tried to take advantage of every incentive the state allows us to give. We did a lot of public investment in transit and streetscaping and other things. And it wasn’t always manifesting in the way that we had hoped. We weren’t seeing any redevelopment and we still had a ton of vacant lots.
David Roberts: Yeah, I should say just I’ve been to Spokane and even relative to other big cities you see, there is a striking amount of weirdly underdeveloped land right in the middle of the city. It’s a striking feature of Spokane, I think, to this day.
Kitty Klitzke: Yes, and it’s a thorn in my side. And it has been for a very long time. But I think
David Roberts: This was before you got on the city council? ‘Cause that
Kitty Klitzke: Well before, yes. This was a twenty year process for me. But I think what I started to notice over the years is just like public policy, taxes can be kind of an unintentional source of social engineering. And so when we tax the value of a building, we disincentivize quality, we disincentivize good materials.
David Roberts: Yeah.
Kitty Klitzke: And we disincentivize maintenance.
David Roberts: So that’s why that gets to what the guy said to you before. The reason people now are building with cheaper materials and building cheap tiki tacky buildings rather than nice quality buildings is that they get taxed more the higher the value of the building they build, basically.
Kitty Klitzke: That’s surely a part of it. I think it also affects the way that things are financed. I don’t see raising the land value as the thing that we tax over the building as penalizing. I think what we’re doing is we’re actually changing the stakes. When we upzone and incentivize land, it increases the expectations for speculators, right? So I can’t tell you how many times I’ve gone and You know, an area’s been recently upzoned. A landowner owns this huge piece of land. And I’m coming in and talking to them about why they need a street vacation so they can maximize the use of the lot, all these stories about what they’re doing. And so we do the street vacation, and then the land just still sits there for sale. All they’re trying to do is maximize the value of that lot. They had no intention of developing it because developing things is a lot of work. And so we’re raising the value. And keeping the stakes extremely low for someone who wants to speculate. They’re paying almost nothing in property taxes. But they’re slowly like building the value of this piece of land by us upzoning it, incentivizing it, and then maybe doing a little bit of administrative work. And the land just goes up hugely in value.
David Roberts: Right. So Spokane is raising the value of the land. Yes. And they are benefiting from it.
Kitty Klitzke: With very little risk, right? And meanwhile the neighborhood’s sitting there experiencing this vacant lot, like all the nuisances that come with that, whether it’s raccoons and stray cats or squatters and crime, we experience all those nuisances associated with that vacant lot that is usually in a prime location and it just sits there because they’re waiting for the person to pay the right price and they’re doing the minimal amount of work to get more money out of that. But when you take away the risk of higher property taxes and all of the things from the part of the building, we’re doing what we can to incentivize a higher quality building and make it easier to build that building. They don’t have to consider it in their finances, having their property taxes go up. So I think it’s kind of a virtuous cycle and Like that experience in Capitol Hill, this made it very real for me. These kinds of policy decisions that are very hard to change because they involve taxes. And I feel like there are a lot of boogeymans with taxes. Yep. But if we don’t get serious about what we’re doing wrong and what we’re truly incentivizing and disincentivizing with our tax system, the problem is just gonna continue to fester. I was in Peru the last few weeks and I noticed that There’s a lot of unfinished looking buildings everywhere. There’s rebar sticking out of the beams, tops of buildings and things. And someone on the bus I was on finally asked someone why this is. They don’t tax buildings that are incomplete as highly as complete buildings. And so people just don’t complete the building. You’ll see the two or three story window with rebars sticking out of the top floor. To imply that there’s going to be another floor someday. So please don’t tax me. And I think they were probably trying to make it easy for developers, trying to ease the burden on somebody who’s trying to build their building or their house. But what it’s resulted across the country from Lima to Cusco, these weird-looking, unfinished, substandard-looking housing that might be nice inside, but looks terrible from the street.
David Roberts: Yeah, tax policy is full of unanticipated consequences.
Kitty Klitzke: But I feel like we have gone as far as we can in Spokane with upzoning and incentives. We’re trying to diversify the building types we allow. We’re trying to make our code more flexible. We went to a form-based code a while back, and it’s still not resulting in the type of turnover, but we have some landholders in the community that just sit on land and are happy to do that for decades or generations until the golden goose turns golden enough, I guess. And that’s really just not great for the community. So I’ve been talking about this issue for years under different names. At first we started talking about it as a universal, or no, we first called it highest and best use. And that conversation kind of got shut down. Like, what about the vacant lot next to my house that I might someday want to build for my grandma? Okay, how badly do you need that? And if you’re serious about it, why can’t you pay taxes on it? But then we started talking about land value tax and the constitutional things came up and it wasn’t until I got connected with land economics and Greg and some other folks that we started thinking about this universal building exemption concept, which has been really helpful because it was starting to seem impossible. To get a policy that really reflects the goals and values of our community rather than making it harder for everybody to get there.
David Roberts: So it’s the split value thing that that is somewhat new to you then. So this is a proposal now that you’ve put on the table at the city council level. It didn’t get through this time. What’s the sort of political state of state of play of the proposal specifically?
Kitty Klitzke: We weren’t really able. We don’t have the statutory authority to reform taxes at the city level. For almost everything, we do have to go to the state for permission, even if it’s something we’re going to ask voters for, unless it’s something that the state has already carved out our ability to do, we cannot do it. So
David Roberts: So you’re pushing for a state law, some sort of state reform.
Kitty Klitzke: We are trying to get the authority from the state to be able to do this in our city, either as a pilot project just for Spokane or as we’re finding there are many cities that are interested in this, as either a pilot project or just a permissive legislation for cities who want to opt into this.
David Roberts: And so what is the state of play at the state level then? It didn’t it didn’t get through this session. Is it still I mean
Kitty Klitzke: We’ve had difficulty getting it drafted because we feel that we need some cooperation from the Department of Revenue to do that properly. And the code revisers at the state level don’t necessarily have the confidence to just sit down and draft Department of Revenue laws without the cooperation of the Department of Revenue. So we have a kind of steep learning curve that we need to get folks over to understand the why and the what. Of this and that we’re not trying to raise taxes or create any inequities. We’re trying to increase opportunity and build a tax code that makes more sense for the goals of our cities.
David Roberts: Well, if there’s one thing I have learned about Washington Cities is that single family homeowners have a lot of power. In them. There are a lot of single family homes in them, and single family homeowners have a lot of power and they tend towards NIMBYism. I’ll just say as charitably as possible. So what do you say to single family homeowners who say, look, if you’re gonna incentivize building, that’s means people are gonna build a bunch of big apartment buildings in my neighborhood. This is of course the terror of all single family homeowners in Washington is that someone builds an apartment near them, what do you say to the single family homeowners who are worried that this is going to induce a bunch of development in their neighborhoods?
Kitty Klitzke: Well, first of all, it doesn’t affect the zoning at all. So if you’re not zoned for multifamily, you’re not going to see multifamily just because of a land value tax. In Spokane, we don’t have any single family zoning. So a fourplex could be allowed anywhere. And so that could already be a fear of someone who’s afraid of those types of things in their neighborhood. But what I will say about this is this makes it easier for someone in your neighborhood to build another bathroom, to re-roof their house if they need to, to upgrade their facade, to maintain the homes that they have without fear of their property taxes going up or their next door neighbor’s property tax going up just because they made some improvements. And their property taxes will go down. So there is some benefit to single family homes. It also makes I think a person who has purchased a vacant lot and wants to build a single family home, that’s gonna be easier for them to do because the taxes are not going to go up significantly on that lot when they build a house on it. So it doesn’t do what people think it’s gonna do. It’s there to get rid of the speculation and the very woeful and obvious underdevelopment. We have some huge surface lots where there should be buildings in our downtown. We’re about to make significant investment on our division corridor that goes through the center of the city, our biggest main street. We’re gonna build bus rapid transit there and do station improvements and streetscaping and all of those kinds of things. And that area is just an eyesore. It’s full of vacant lots, cinder block empty buildings. There’s only really one significant multi-story building and it just stands there by itself compared to this kind of depressing single story and vacant lot area. And we don’t want to make that kind of public investment. It’s going to be a quarter of a billion dollars of public investment and then see nothing grow out of that. And that’s what could continue to happen if we continue to make it incredibly cheap for those landowners that own a ton of land on that corridor to do nothing until someone else does and makes it more profitable.
David Roberts: So getting back to the assessment question, it’s kind of technical, but it turns out to be like one of the real barriers here. The county, your county assessor called this proposal crazy because he says then you have to you’re running two different tax rolls, you’re making two separate assessments for every property. The state assessors association were unanimous in opposing this. It seems like that’s a real barrier here. So how do you solve that? I mean, it’s my inclination, obviously, being the way I am, is you just need to fund and staff your assessing departments adequately, but how are you addressing that objection and that bit of resistance? Do you have answers or proposals to help them?
Kitty Klitzke: I think first of all, we’re not asking them to change the way they assess land or home. The value of the home and the land stays the same. It’s just how much of the tax burden we apply to the land part and how much tax burden we apply to the building part. That’s really all that’s changing. We’re not asking to assess lands differently at all. So that’s kind of a misunderstanding. I don’t know if they saw like an early draft that could have implied that, that made them think that that’s where we were going. But our county assessor has been on board at different times and has kind of changed his mind as he hears other voices interpreting this in different ways. But I think this is there’s no insuperable barrier there to getting them on board. I think what they will have to do is work with their local governments and create the algorithm that works for their land base and their goals and then apply that algorithm to each property. So this could be a matter of just programming and not necessarily having to hire new staff.
Greg Miller: And I’ll chime in here as well, because I’ve talked to a lot of these assessors in Washington State on this. And ultimately they already value the land and buildings separately. And across the country this is true too. And the different counties do it differently. Spokane actually does a quite good job of their split between land and buildings. And these counties in Washington already administer the multifamily tax exemption, which is an exemption on improvements. And this is very similar. We’re not asking them to run two split rolls. We’re asking them just to add another exemption to properties. So we don’t think that there’s as large of an administrative barrier as assessors make it out to be. We’re working with them to figure out how we can ensure I used to work for Housing and Urban Development. I care a lot about administration. But I also think that there’s this sentiment among assessors we see nationwide when we talk about this policy. Some are actually very much in favor. Some think really like their land values, but some push back a lot. And I think that this sentiment Imagine if today we didn’t have a property tax system. The idea that you’d go around each city and value each property would sound so absurd. Yes. How how do I know that the granite countertops worth eighty thousand dollars and the building’s a depreciated twenty thousand dollars? I mean
David Roberts: Yes, indeed. It’s something of a mystery to me how they do it how they do it now. I mean it’s
Greg Miller: And it works, right? Granted, people push back nowadays and make this argument that it’s illiquid, you don’t know the value until it sells. But it turns out that our property tax system works pretty well. And so if we were in this alternative universe where we didn’t have one, we would hear the exact same pushback. Now, this is an even less of a step from going from no property tax to a property tax, because we already have all of the infrastructure to value land. We have all the data we need. Now Some assessors might not be paying as much attention to the land values they should be, but they already have all the infrastructure and data they need. And so this to me sometimes feels like a larger argument than it should be, because people just aren’t imagining what the future could look like in terms of land value taxes. And it’s not as crazy. It’s just as crazy as a property tax is. We already do property taxes. So I think it’s possible, it’s entirely possible.
Kitty Klitzke: Mm.
David Roberts: Another question is just about the size of this and the effects it will have. So, and tell me if I’m wrong about this, Kitty. So, under this proposed tax split in Spokane, as I read the report, the median tax bill of a vacant parcel will rise by something like $560 a year. But These improvements you’re making, these investments like the like the investment in bus rapid transit, et cetera, et cetera, this these some of these land values could be appreciating by tens of thousands of dollars a year. So so I’m sort of wondering, like, even if you get this passed, is the scale of it sufficient really to actually induce building? Like what is the what is the modeling show you about whether this is actually going to induce behavioral change?
Kitty Klitzke: Well, I think that’s the question right there. I think it depends on how we’re able to apply it, if we’re able to make it applicable to state and local taxes. There’s a lot of what-ifs there that are going to be worked out through the legislature. I’m obviously hoping for the maximum impact possible, but it is just one tool in our toolbox to try to incentivize infill. We still need good growth containment strategies. We still need economic development plans. We still need to improve our zoning and our building codes, all of which we are working on and Spokane has been a leader on. But this is just one more thing that slightly equitizes our tax base, gives some relief to residential folks while still allowing us to pay for the infrastructure that some of these larger landowners benefit the most from.
David Roberts: Greg, maybe you could tell us briefly. You did a your outfit has done analyses and reports for various cities, just how this would work and what the effects would be. Tell us what the modeling shows in Spokane, like who benefits and who gets who gets penalized. And I was sort of thinking about the about the people in the single family homes. I mean, it just strikes me, and tell me if this is correct or not, that there’s not one answer. For how it’s going affect people in a single family home neighborhood, it obviously depends on the value of the land, which again depends on the proximity to the core, basically. So, like if you are in a single family neighborhood that’s very close to the urban core, it probably will induce a lot more development than it would if you’re in a neighborhood farther from the core. And it seems to me like that’s exactly what you would want to happen. But but Tell me what the modeling kind of shows, like whose bill goes up and down and like who benefits and who gets who gets hurt.
Greg Miller: Yeah. First, this is a lever that the city has and they can press on this lever as much as they want. And so the modeling we do for the city is a version of the policy. You know, the modeling we published was just one version of the policy that we would propose for Spokane. It doesn’t dial it up immediately, but it’s also not completely light. And so in the modeling we did, there is a base exemption and then an exemption on buildings, a percentage exemption on buildings. And that modeling showed that the median single family homeowner is gonna decrease four percent. But importantly to your point, David
David Roberts: Their tax, the median single family homeowners tax burden will decline very slightly.
Greg Miller: property tax burden. Yeah. Very slightly. And”these count that was what I was about to say is most this large majority of single family homes will stay within 10% of their current bill. And so what this is actually doing is really shifting that burden from the multifamily developments, the townhouses, to the vacant and surface parking lots in the downtown corridor. But also for those single family homeowners. This is not dialing up a full land value tax to 100%. We’re, you know, even if we did 100% building exemption, we’re far from 100% land value tax. And so as the downtown develops more, which this policy would do, the single family home, sure, their land values would increase, but you profit off of that increase. And so there’s still profit incentive for these single family homeowners to see their city get better. At least in my vision. But this again comes down to whether this is about profit maximizing or whether this is about just keeping the character of the neighborhood, right? Which is still undefined science. I think a lot of people are starting to think the latter might be guiding this a little bit more than we once previously thought, right? But the other thing I wanted to touch on in terms of projections outwards in terms of what this does to development, I don’t think it’s been talked about. We’re talking about a 1% tax. We’re used to like eight percent sales taxes, 20% income taxes. But that 1% tax applies annually. And so this building tax, this building portion, if I own a plot of land and I build a million dollar apartment on it, I’m taxed 1%, not just this year on that $1 million investment, but every single year thereafter. Five years later, I’m still paying 1% of that million dollars. We take the net present value of that. We sort of amortize that out. We say, how much tax is this really in terms of today’s money? And it can go up to 20, 30% tax burden. And so the building tax although it seems small, is actually a large tax. And I just wanna touch on that because it’s important to say that we’re not talking about a small tax here. This is number one source of revenue for local governments. It’s a huge tax. And it’s not just a one time tax. So this this is a large tax and a large disincentive to develop.
David Roberts: And you very briefly touched on this, but just to sort of pull this out, taxes would go up the most for vacant lots and parking lots, and would decrease the most for multifamily residences, basically.
Greg Miller: Yeah, that’s the modeling in Spokane. And that modeling typically holds true in a lot of the other cities that we model. Now, it’s always true that vacant land doubles, you know, and surface parking lots double in price. And it’s a little bit variable how much single family homes are impacted, how much multifamily is impacted, but typically single families are not really changing much and your multifamilies typically a median ten percent decrease. And that’s true of the Spokane modeling. It’s true of a lot of modeling we do.
David Roberts: All right. And so Kitty, just one more for you. Just what is the plan? What’s the plan of attack here? Are you gonna have another go at trying to push this in the state legislature next session?
Kitty Klitzke: Yes. We’ll be having workshops for legislators before the session starts to try
David Roberts: Do they get this? In your experience, do they intuitively understand this or is there a lot of education required at the at the state legislature level?
Kitty Klitzke: I think what happens is they get the need for it. They get the idea and the concept and then they get spooked when the details come out. And so that’s the point where we have to compete for their attention enough to get them to understand and feel confident that what we’re trying to do is possible and what we’re trying to do is not burdensome to the state or local governments. And then it will be much easier because there’s a ton of interest, there’s a ton of buzz. It’s something that I’ve been talking about for years with certain people and is starting to gain ground in more mainstream circles. Some folks even from counties have been interested in exploring this idea, which I’ve never quite understood, but I’m glad they’re interested.
David Roberts: And specifically are you pushing for a pilot thing for Spokane or are you trying to get a bill akin to what Pennsylvania has, which just says that cities can do this at their discretion?
Kitty Klitzke: I think ideally it would be permissive for any city that wants to do it, but Spokane is always happy to be the test kitchen for the rest of the state. So for me, it would be enough to get it here. I think the problem is pronounced enough. It’s very, very visible and it’s clear that we’ve done everything we can with the other tools that we have, that it would make a lot of sense to be a laboratory here. But I also don’t want to stop other cities from being able to do it if they’re interested.
David Roberts: Interesting. Okay, well, we’re short on time, but just quickly, Greg, tell us a little bit about momentum here. This seems like a concept that was relatively obscure and confined to some committed Georgists not that long ago. And now, you know, I hear it popping up more often. My own mayor of my own city, Katie Wilson here in Seattle, mentioned briefly recently that she is interested in this idea, is interested in possibly pursuing this idea. So it seems like it’s gaining momentum. What is actually happening and where?
Greg Miller: It’s gaining a ton of momentum, and I think it’s all part of this urbanist movement. I think it’s part of people trying to broaden their perspectives. I think three to four years ago there was maybe a couple of states considering legislation to enable cities to implement this policy.
David Roberts: And this is just to clarify, enabling cities to do this split rate, that is the main mechanism we’re talking about. That is the main thing we’re trying to push through state legislatures. Nobody is really contemplating like a full on full on straightforward land value tax, are they? It’s just it’s this is the tool that we have available. Is that is that more or less correct?
Greg Miller: Well, David, if you talk to the right people, you’ll find some people pushing for federal land value tax and constitutional amendments.
David Roberts: Hey, hey oh.
Greg Miller: Yeah, this is the policy. I believe in incrementalism. I think this is, you know, the step in the right direction. And so this is what I’m talking about, is just enabling the split rate. Again, even once it’s enabled for the city, you don’t have to dial it up a hundred percent. The Pennsylvania cities haven’t done that.
David Roberts: You can be as incremental as you want, basically, once this is enabled.
Greg Miller: Precisely. And so yeah, you know, three years ago we were looking at a couple of states. Now we’re looking at twelve, ten with introduced legislation to enable cities. We’re looking at two states that have passed legislation this year for the first time in probably a couple of decades. I think Virginia had one bill in the two thousand tens, and outside of that we really haven’t seen movement on this.
David Roberts: Who passed?
Greg Miller: So Virginia and Kentucky passed bills. Virginia enabled four additional cities. Newport News and Charlottesville are like the sort of main ones and then Kentucky enabled Louisville to implement split rate taxes. And so we think that we’re just at the beginning of this. I think the momentum’s only gonna continue.
David Roberts: Am I making it up, there’s one place where a Republican legislature pushed this through over a Democratic governor’s veto. Is that Kentucky?
Greg Miller: This is Kentucky. Yeah, so Kentucky was doing a
David Roberts: So this is like really intriguingly cross partisan. It’s not a straightforwardly partisan kind of thing.
Greg Miller: Yeah, that’s actually a great point. Virginia, the same month, Virginia and Kentucky pass a bill. Virginia’s blue. They passed a bill, actually pretty bipartisan anyways. Kentucky, the split rate tax was part of a larger governance overhaul. And so it was just one component. And so the Republicans were pushing this through. They wanted to remake the ethics committee to make it more Republican in nature for for the metro councils. And they added this in because they were really interested in this as a pro development strategy, particularly for urban areas.
David Roberts: So we think of Republicans, I mean, I think of Republicans generally as kind of hostile to cities on a general basis. So what is kind of the conservative rationale here? What do Republicans say on behalf of this policy?
Greg Miller: It’s pro development. So this Senator, or former Senator, Pat Toomey was once Allentown, Pennsylvania’s city administrator. And he wrote a letter to all the nearby cities saying, You guys should do split rate land value taxes. This is the best tax, right? This is pro development. And he becomes a Republican senator, running a very conservative, fiscal conservative, or I think he was at one point, I forget what he’s up to now, but In Kentucky it was the same story, right? Milton Friedman loves this tax. This is pro development. And to complete the story, the Republicans are then steamrolling the Democrats on this urban reform to remake the ethics committee, but there’s this land value tax provision. A Democrat stands up and is like, I hate this bill, but I love the land value tax provision, you know? And so really we are seeing bipartisan support. I think that there’s something for everyone to love here. Some policies sound too good to be true. Land value tax, might be too good to be true, but we will find out. I like to believe that it’s too good to be true, but then every time I think about it further, I’m like, this is a great policy and that’s why I focused on it so much, and started the Center for Land Economics to work on it full time. So
David Roberts: Yeah, I mean you have to tax somebody, right? Like somebody’s gotta pay taxes if you want to have public amenities. And like almost any group you can gin up some sympathy for, but almost nobody really loves land speculators. You know, this is not a group of people that have a lot of like explicit defenders in the legislative world.
Kitty Klitzke: Except themselves.
David Roberts: Yes. Yes, to the extent that they are organized, they defend themselves. But if you’re looking for people who, you know and if you’re looking to sort of minimize again the second order, you know, negative effects of taxing, you’re not gonna get any less land, right? Like you can’t get rid of land by taxing it. So like this seems like it ought to be an area of agreement. Okay, well I’ve kept you all long enough. As usual when I dig into something like this, I realize you could do a million pods on this and barely scratch the surface. But I think we sort of captured the basic idea. So thank you, Greg, and thank you, Kitty.
Kitty Klitzke & Greg Miller: Thank you
