By Irza Waraich
Eighteen-nineties Detroit had an abundance of land and a shortage of municipal revenue and city services. To wrest control of the land from speculators, who either profited from rent or left land undeveloped, waiting for it to increase in value, then-Mayor Hazen S. Pingree introduced a property tax as the sole funding mechanism for the city’s essential public services.
By adopting a single tax on land, Pingree was following the precepts of the progressive economist Henry George, whose book Progress and Poverty was hailed at the time as “a cure for poverty and inequality,” said Polly M. Cleveland, former adjunct professor of environmental economics at Columbia University.
Pingree’s single tax targeted only land, and neither buildings nor property improvements. At a property tax rate of 2.5 percent, the city was able to fund public services, such as education, health, water, sanitation, parks, welfare and more. Before Pingree’s land taxes, all revenues came from state and local property taxes on both land and structures; there were no income, sales or business taxes.
The tax also helped lower fares on mass transit — in the form of trolley cars — making it more affordable for working-class families.
Pingree’s strategy worked. In response to the land tax, Detroit’s private sector soon teemed with small machine shops, and even lured Henry Ford and the Dodge Brothers to the city.
More than a century later, Detroit is once again flirting with Georgism as a way to spur development and revitalize 19 square miles of vacant land, which comprises close to 14 percent of the city’s 139 square miles.
Detroit Mayor Mike Duggan has proposed a new form of land-value taxation and is working on a ballot measure he hopes to put before voters in November. The Land-Value Tax Plan aims to increase taxes on vacant land and spur development, while offering tax relief for Detroit homeowners.
Under the proposal, 97 percent of homeowners would receive a 17 percent cut in taxes, according to the City of Detroit, which will be paid for by increasing taxes on abandoned buildings, parking lots, scrap yards and other similar properties.
The idea is to end a system in which, “blight is rewarded, and building is punished,” according to the city.
“Economists in general like land-value taxation based on the theory that you’re encouraging development and you’re discouraging speculative holding of vacant land,” said Rick Mattoon, vice president of regional analysis and engagement and Detroit regional executive for the Federal Reserve Bank of Chicago. “So that part of it makes a lot of sense. The problem is that whether it’s going to be effective really depends on a lot of local conditions.”
Today, there are few examples of land-value taxation in the U.S. and, among the cities that have tried it, not all have been successful.
The only successful example of a modern land-value tax is in Pittsburgh, which used the system to solve a very different problem. Like many Pennsylvania municipalities, the city has played with multiple versions of land-value tax since 1913. Toward the end of the 20th century, Pittsburgh used the land tax to help meet high downtown commercial and residential-housing demand — the mirror opposite of Detroit; taxes on structures were about twice as high as on land. The land tax was credited with spurring a higher level of construction in Pittsburgh than similar-sized cities in the Midwest that also had low-vacancy rates, but didn’t have a land tax, according to an analysis by the Federal Reserve Bank of Chicago.
The land-value tax is also credited with helping to raise the funds needed for a redevelopment initiative known as Renaissance 2, and the creation of the Pittsburgh Light Rail System, also known as the “T.”
Additionally, Mattoon said the reason why the tax may not prove effective in Detroit is because it’s unclear how much demand there is for land, making it difficult to draw expectations from other experiments.
“It was successful in Pittsburgh, because it was only applied in the downtown area where there was a high demand for property,” Mattoon said. Apply the system across a large city where land values vary significantly, and you could see all kinds of “distortionary effects.”
Mattoon explained that the real idea behind the land-value tax is to get the land to be used for its highest and best purpose, and “that could be a parking lot,” he said, noting that not all locations are suited to the development of large commercial buildings.
Indeed, one of the most controversial aspects of the Detroit land-value tax plan is that it would double taxes on scrap yards and other land the city deems to be under-utilized. In the process, it raises concerns about how the city defines efficient land use.
“In the context of a city that’s been losing population, the development pressure isn’t everywhere,” said Tom Goddeeris, chief operating officer of Detroit Future City, a local think tank. “It’s only certain places that have become desirable.”
The high amount of empty acreage is a byproduct of Detroit’s years-long economic decline, which saw the city’s population shrink to around 630,000, down nearly two-thirds from the peak in the 1950s. Locals question the development potential of scrap yards and other underutilized properties far from downtown.
Indeed, much of Detroit’s vacant and blighted land is owned by the city — land that was abandoned or declared bankrupt — and not by private individuals, and thus would not be subject to any tax. The Detroit Land Bank Authority (DLBA) owns over 70,000 properties, which account for 18 percent of all city property. Of the Land Bank holdings, 62,000 are vacant lots.
The land bank’s mission is “to return the city’s blighted and vacant properties to productive use,” according to its website. It has sold over 25,000 lots, rehabbed 99 properties and demolished over 15,000 properties that are deemed uninhabitable. The “Side Lot Program” also allows homeowners to purchase vacant lots that surround their homes for just $100.
However, the land bank has faced criticism on how it operates, including complex requirements for land rehabilitation and land acquisition.
“There are a lot of good people at the land bank if you deal with them on an individual basis, but institutionally, it’s still a challenging organization to work with,” said Goddeeris.
Critics note that while Detroit publishes a mowing schedule for the vacant land it owns, city-owned properties sometimes contribute to neighborhood blight. Nor is the city always amenable to planting trees on property it hopes to sell, according to Goddeeris.
“If you go down the street, there’s seven or eight burned-down houses and a bunch of junk,” said Ross Winston, the fourth-generation owner of Winston Brothers Inc., a local scrapyard. The property neighboring his business is mostly owned by the city. “The street is so rough you can’t drive your car down it. And then the one lot that we own, we maintain it, we cut the grass, we trim the tree back.”
The city has made progress in revitalizing a few areas, especially downtown and the riverfront — a three-and-a-half-mile walkway overlooking the Detroit River — and several walkways leading to it, within and around the downtown area. Several downtown development projects are currently underway or set to commence soon, including the $1.5 billion District Detroit development project, expected to introduce numerous high-end residential buildings and luxury hotels.
However, it’s unclear that the land tax can resolve the problems of far-flung neighborhoods in a diverse landscape.
For now, the land-tax strategy faces more immediate hurdles. It will need to pass the Michigan state legislature to get on the November ballot. Three earlier attempts to pass the plan failed last October. To put the ballot measure in front of Detroiters in November, it must be passed by the legislature in the summer.
The city says that international economists are hopeful for the land-value tax, with some participating in a poll expressing hope for substantial economic growth within the next 10 years.
If the ballot measure passes, Detroit homeowners could see a big tax cut in 2025. But measuring the land-value tax’s success could take years — the time it takes to redevelop vast swaths of empty land.