How Property Taxes Shape Our Cities

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How Property Taxes Shape Our Cities


JULY 2, 2018

BY CONNOR NIELSEN

Read More: https://www.strongtowns.org/journal/...ape-our-cities

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Property taxes elicit a behavioral impact on urban design, just as planning policy shapes tax revenue. If bricks are taxed higher than wood, wood becomes a more attractive building resource to developers. If larger lots are taxed lower per acre, local government incentivizes larger lots and auto-oriented development. As a result, property taxes have shaped our cities in ways that are often hard to spot. Throughout history, these nearly invisible forces have encouraged distinctive architectural features that ended up characterizing whole cities.

- Paris has a rich legacy of urban design dating back hundreds of years, and one of its most recognizable features is the ubiquity of the mansard roof. In the early 17th century, buildings were taxed by the number of floors leading up to the cornice of the roof. Architect François Mansart ingeniously responded to this rule by hiding an additional story or two under the roof for additional living space, rendering it exempt from taxation. --- In his study of economic institutions, Dr. Daniel Bromley summarizes that “The distinctive architecture of Paris, with its mansard roofs, is a reminder that institutions can give rise to behaviors and particular outcomes that, over time, become not only the norm but also symbols of great beauty and admiration.”

- When Amsterdam was meticulously planned in the Dutch Golden Age, canals were the most important mode of transportation in the city. Canal access was crucial for merchants, so the government answered the demand by taxing houses based on the width of their canal frontage rather than height or depth. The outcome was Amsterdam’s famously narrow buildings. When I visited the city a few months ago, I made a point to snag a picture of Singel 7, supposedly the skinniest house in the world. --- According to my guide, Amsterdammers today take pride in their unmistakable urban design as a spatial manifestation of their mercantile heritage that blends commerce with art. This happened largely due to its property tax policies, not in spite of them.

- In 1696, the British Crown enacted a tax on windows. For early assessors, counting the windows on a building was a crude way to estimate the proprietor’s income. Houses in England were taxed by unit at a flat rate, then proportionally upward dependent on the number of windows. In response, homeowners simply removed their glass from their windows and sealed them with bricks. It was an unsightly but cost effective response. Kohlstedt points out that “though they were repealed in most places well over a century ago, the legacy of bricked-up windows remains on many old structures.” --- Taxation is a powerful planning tool, whether we want it to be or not. If we fail to unify our local finance system with our planning goals, we end up with fewer mansard roofs on mixed-use buildings, and more bricked-up windows and municipal debt.

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MANSARD ROOFS IN PARIS







CANAL HOUSES IN AMSTERDAM







WINDOWS IN ENGLAND

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From 1913 to around 2000, Pittsburgh was the largest city in the country which operated on Georgist principles. Basically the city decided that instead of straight-up property taxes, the city would tax land at a higher rate than property improvements. The logic behind this system was it incentivized building out real estate as densely as possible. At its peak in 1979, land was taxed at a five times higher rate than buildings.

The system was abandoned because it was also a grossly regressive tax system. Obviously land values were higher in more desirable areas like downtown, and there still was a tax on property improvements. But on the whole, it resulted in the owners of skyscrapers paying tax at a very low rate, while homeowners paid at a high rate. So we've gone to a normal property tax assessment.*

* Except, as is the case in many cities, we have a higher income tax (on the school district side) than the suburbs. This leads the millage to actually be relatively low compared to the suburbs, so commercial property owners are still indirectly subsidized by the city's tax structure.