Detroit considering changing to Land Value Tax, Duggan says

[royce]

I'm not sure this is the best nor only solution to a real problem. But the 'real' underlying problem is that Detroit taxes are extremely high. Fix that, and you've really addressed a dramatic harm to Detroit's.

Lowering property taxes is definitely one way to go. Well, here's my problem. Back in 2021 the Land Bank offered side-lots within five hundred feet of a taxpayer's principal residents for $100. My mother's property was surrounded by side-lots to the South and West of her principal residence. On her behalf, I purchased seven of the lots. I later added my name to the lots and my mother's principal residence. In the spirit of the movie the Godfather, "The Land Bank made me an offer I couldn't refuse."

Ok, so I'm sitting on these lots with the idea that I could sell some of them to a developer who wants four to five contiguous lots to develop. In the meantime, I cut the grass and maintain the properties. The city no longer has to hire someone to cut the grass. In addition, I'll eventually have to pay property taxes [[currently they're exempt up to 2026).

Here's the thing. I'm maintaining the properties, but according to this land value tax I'm going to be penalized if I don't put houses on them? Or worse still, I'll be forced to sell the properties because the property tax is going to be higher than what I pay on my principal residence. Someone help me understand this. Thanks in advance.

[mwilbert]

Lowering property taxes is definitely one way to go. Well, here's my problem. Back in 2021 the Land Bank offered side-lots within five hundred feet of a taxpayer's principal residents for $100. My mother's property was surrounded by side-lots to the South and West of her principal residence. On her behalf, I purchased seven of the lots. I later added my name to the lots and my mother's principal residence. In the spirit of the movie the Godfather, "The Land Bank made me an offer I couldn't refuse."

Ok, so I'm sitting on these lots with the idea that I could sell some of them to a developer who wants four to five contiguous lots to develop. In the meantime, I cut the grass and maintain the properties. The city no longer has to hire someone to cut the grass. In addition, I'll eventually have to pay property taxes [[currently they're exempt up to 2026).

Here's the thing. I'm maintaining the properties, but according to this land value tax I'm going to be penalized if I don't put houses on them? Or worse still, I'll be forced to sell the properties because the property tax is going to be higher than what I pay on my principal residence. Someone help me understand this. Thanks in advance.

As the proposal currently stands, the taxes on those lots would go up. But how much tax are we talking about? Vacant lots in a random part of the city aren't usually that valuable. You should be able to find out what your assessment is on those lots even if your tax is abated. Then you can calculate what the tax would be if such a proposal was adopted. And as mentioned earlier, most of the tax wouldn't be affected at all, because this proposal would only affect the city portion of the tax.

There is no penalty because a lot doesn't have a buildings on it. The idea is that the underlying land has some value, that is taxed the same [[higher than now) whether or not it has a structure. Then if you put a building on it, the land tax doesn't change, but there's also a tax on the building. But that tax is at a lower rate than it is now.

The net result is that if the building is worth much more than the lot, which is true of the vast majority of lots with buildings on them in the city, the overall tax would be lower. The owners of vacant lots and low-value buildings on expensive lots pay more. But because most of the lots in the city aren't worth that much, the main effect is that overall tax is shifted onto people to with underutilized land in parts of the city where land is relatively expensive, such as downtown parking lots. Which is the idea--to make it unattractive to hold valuable land idle or in low-value uses, and to make it more attractive to build things.

[Wesley Mouch]

As the proposal currently stands, the taxes on those lots would go up. But how much tax are we talking about? Vacant lots in a random part of the city aren't usually that valuable. You should be able to find out what your assessment is on those lots even if your tax is abated. Then you can calculate what the tax would be if such a proposal was adopted. And as mentioned earlier, most of the tax wouldn't be affected at all, because this proposal would only affect the city portion of the tax.

To tax land separately from buildings requires a good valuation of each component. And teasing the two apart fairly is difficult, but not impossible.

Assessments ultimately are based on actual sales of property -- both bare and improved [[with buildings). To know the land value, you have to be able to remove the home or building value from the sale price, and then impute the land value.

There is no penalty because a lot doesn't have a buildings on it. The idea is that the underlying land has some value, that is taxed the same [[higher than now) whether or not it has a structure. Then if you put a building on it, the land tax doesn't change, but there's also a tax on the building. But that tax is at a lower rate than it is now.

This is precisely correct. All that would be done is the change the relative valuation of the components, assuming that information has been done correctly. It doesn't seem difficult to do. But there may be impacts that are unintended. That's the problem.

The net result is that if the building is worth much more than the lot, which is true of the vast majority of lots with buildings on them in the city, the overall tax would be lower. The owners of vacant lots and low-value buildings on expensive lots pay more. But because most of the lots in the city aren't worth that much, the main effect is that overall tax is shifted onto people to with underutilized land in parts of the city where land is relatively expensive, such as downtown parking lots. Which is the idea--to make it unattractive to hold valuable land idle or in low-value uses, and to make it more attractive to build things.

Sure, it's a nice theory. But how will it really play out?

The total amount of taxes required to support city services at the current levels is pretty much fixed. [[Except for adding a few more equity programs every day.)

So the taxes are simply being redistributed.

What is the actions taken based on these new valuations. Current developers who are trying to put together projects face increased costs. This makes development less likely in the future, since their total cost of development obviously goes up.

Land Speculators will stop speculation. And that sounds great. They'll want to sell the land -- but the value will have dropped since nobody wants to pay the increased taxes if they can avoid. [[Unless they will profit more from the home sales.)

Will local residents buy this land, and build homes? I suppose that's the dream. They'll face increased taxes on the bare land until they do. And likely during construction. Building would be riskier, as you have to be prepared to face increased ongoing taxes until you can develop.

Key to how much this breaks housing construction and development will be how much the taxes have to go up. What's the ratio of developed to undeveloped? Is it even 50/50? Let's say that it is. Then every dollar down that your total tax bill goes down on your home results in a $1 increase in the tax on vacant land. You're pretty much going to upend the tax burden, and support existing homeowners, at the expense of anyone trying to bring new homes on-line. Sure, there'll be developers who will be encouraged to build -- but likely far more than just walking from Detroit development. That's not gonna help, and that's likely.

[mwilbert]

Will local residents buy this land, and build homes? I suppose that's the dream. They'll face increased taxes on the bare land until they do. And likely during construction. Building would be riskier, as you have to be prepared to face increased ongoing taxes until you can develop.

Key to how much this breaks housing construction and development will be how much the taxes have to go up. What's the ratio of developed to undeveloped? Is it even 50/50? Let's say that it is. Then every dollar down that your total tax bill goes down on your home results in a $1 increase in the tax on vacant land. You're pretty much going to upend the tax burden, and support existing homeowners, at the expense of anyone trying to bring new homes on-line. Sure, there'll be developers who will be encouraged to build -- but likely far more than just walking from Detroit development. That's not gonna help, and that's likely.

This seems wrong, and also not the point of the change. But the effect on residential developers should be positive. A typical residential lot in Detroit isn't worth very much. Even if you tripled the taxes on it, and a developer had to pay the taxes on it for a couple of years, the cost would be small relative to the cost of building a new house on one. It's just not going to have much effect. On the other hand, lowering the taxes on the house that ends up getting built will have a positive effect on the value of that house, and hence on the profit the builder could make by building it. But it's not like very many new houses are built in Detroit each year--right now in the bulk of the city housing prices aren't high enough to yield a profit on new construction, so what you get are various kinds of subsidized multifamily developments, and rehab. There's unlikely to be a big effect on this kind of development in any direction.

The main effect will be in the small portion of the city where land is expensive, and there the change should be to lower land prices somewhat, make more land available to develop, and to make that development more profitable. And that, along with shifting some of the tax burden from neighborhood residents to downtown/midtown, is the point.

[Richard]

This seems wrong, and also not the point of the change. But the effect on residential developers should be positive. A typical residential lot in Detroit isn't worth very much. Even if you tripled the taxes on it, and a developer had to pay the taxes on it for a couple of years, the cost would be small relative to the cost of building a new house on one. It's just not going to have much effect. On the other hand, lowering the taxes on the house that ends up getting built will have a positive effect on the value of that house, and hence on the profit the builder could make by building it.

In any case. the main effect will be where land is expensive, and there the change should be to lower land prices somewhat, make more land available to develop, and to make that development more profitable. And that, along with shifting some of the tax burden from neighborhood residents to downtown/midtown, is the point.

It’s the point but also the problem and what got the city to where it is today,shifting the tax burden to those who can afford it more,the ratio changes of those who can afford it more which increases the burden to the point to where they bail.

Look at the 100s of thousands fleeing high tax states,instead of looking for ways to lower that burden they are looking at ways to shift it.

Not to go into politics but progressive policies are what hurt the city from the start and now they are doubling down on them.

First the $50m cap now this,it follows the mantra of the rich can afford to offset the transfer of obligations.

In the video a $500 lot in Detroit was compared to a $150,000 lot in a desirable location in the burbs.

Can I buy a lot for $500 in EEV or Mid Town or even downtown,sign me up ,real estate is location location location.

If it was the answer every city in the country would have implemented it already even more so the ones that are bleeding population,there is a reason they have not.

[Richard]

Lowering property taxes is definitely one way to go. Well, here's my problem. Back in 2021 the Land Bank offered side-lots within five hundred feet of a taxpayer's principal residents for $100. My mother's property was surrounded by side-lots to the South and West of her principal residence. On her behalf, I purchased seven of the lots. I later added my name to the lots and my mother's principal residence. In the spirit of the movie the Godfather, "The Land Bank made me an offer I couldn't refuse."

Ok, so I'm sitting on these lots with the idea that I could sell some of them to a developer who wants four to five contiguous lots to develop. In the meantime, I cut the grass and maintain the properties. The city no longer has to hire someone to cut the grass. In addition, I'll eventually have to pay property taxes [[currently they're exempt up to 2026).

Here's the thing. I'm maintaining the properties, but according to this land value tax I'm going to be penalized if I don't put houses on them? Or worse still, I'll be forced to sell the properties because the property tax is going to be higher than what I pay on my principal residence. Someone help me understand this. Thanks in advance.

The Lincoln Institute report recommended Detroit implement a split-rate tax at a 5:1 rate, with land value making up the bulk of the tax rate. Anderson said a land value tax could produce the same effect, and the focus on land value might be an easier legal lift. He called Detroit "an ideal test bed" for the tax plan, but said it could take a decade before the impacts are clear.
Anderson, and the report, tried to avoid speculating on what the change might do to Detroit's economy and the business environment. Gabriel Cuéllar, a visiting assistant professor in architecture at the University of Michigan, cautioned that the city wouldn't be able to control the kind of businesses or structures that came in if property was marketed for sale or if someone decided to build. There's no telling what use they will choose, he said.

https://archive.ph/9UKjd

Sense you joined the ranks of speculators and if the proposal goes through,you can build whatever you want on the property.

Strip clubs make good cash.

It will be a free for all,take an empty lot in EEV and turn it into a drug rehab facility or nice homeless shelter,nobody will be able to say anything including the city in opposition.