Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1310

Yesterday I wrote about a new book that was just released called The Next Urban Renaissance . 

The first essay in the book, written by Ingrid Gould Ellen of New York University, is centered around three ideas to help cities deal with the affordable housing problem. This is something that successful cities all around the world are grappling with.

The first idea is land-value taxation, which is also known as a “split-rate” tax. I’ve touched on land-value taxation before on ATC, but I never really dug into it. So this was a good reminder to do that.

The idea behind land-value taxation is to split property taxes into a land tax and an improvements tax (i.e. the building), and then shift more of the burden over to the land side. Economists tend to really like this model because taxing buildings/improvements can discourage property investment and development, whereas taxing land doesn’t impact supply. The supply of land is fixed.

So in the context of affordable housing, land-value taxation is thought to be a way to encourage more development and to increase the supply of new housing – which is usually a good way to keep home prices in check.

Here’s how Ingrid Gould Ellen described it:

…a land tax would discourage speculators from hoarding undeveloped land and incentivize them to develop their parcels to the full extent allowable. Regardless of whether a parcel sits vacant, houses a partially occupied, one-story retail strip, or holds a 30-story apartment tower, the annual tax bill would be the same. By switching to a land tax, a city could therefore increase the supply of housing and, by doing so, reduce prices across the board.

But I can’t help but wonder if this isn’t more applicable to cities or areas that are currently struggling to encourage development. For instance, would boom town Toronto really benefit (in terms of affordable housing) from a tax change that ends up encouraging more high-rise development?

It also strikes me as being exceptionally difficult to implement, particularly in city like Toronto that is growing and changing so quickly. Is it reasonable to ask the owner of a small downtown parking lot to being paying property taxes as if a 90 storey supertall had been built on top of it? Because that is the reality in some parts of this city.

And if we opted to phase in this new land tax, would it then become a game of arbitrage where developers look for properties with the lowest land taxes but the highest achievable densities?

Finally, I wonder if it wouldn’t exacerbate some of the problems that already exist in rapidly growing cities, one of which is the preservation of smaller heritage buildings in centrally located neighborhoods:

In the case of a split-rate tax, the losers will be owners of parcels with high land-to-building value ratios, or owners of small buildings on valuable, centrally located parcels, who will likely see an increase in their tax bills after the switch to a split-rate tax.

Land-value taxation is something that I’ve been thinking about for a number of months now. But I am struggling to come up with a decisive position. If you have any thoughts on this, it would be great to hear from you in the comments.

The Manhattan Institute for Policy Research has just published a free book called, The Next Urban Renaissance: How Public-Policy Innovation and Evaluation Can Improve Life in America’s Cities.

Here’s an excerpt from the foreword:

This collection of essays brings together the best ideas from scholars with expertise across a broad spectrum of urban issues. The common theme of the papers is to innovate, evaluate, and leverage the remarkable private talent that is so abundant in America’s great cities. Public capacity is sharply limited; the ingenuity of urban entrepreneurs seems practically boundless. Local governments should be more entrepreneurial and do more to use the talents of the entrepreneurs around them.

As a further preview, two of the ideas suggested in the book include: 1) reducing or eliminating parking requirements for new developments (which is something I’ve written about before on ATC ) and 2) implementing a split-rate property tax for land and its improvements.

If you’d like to download the free PDF, click here .

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I was having round 1 of (Canadian) Thanksgiving dinner with my father on Saturday night and we inevitably started talking about the Blue Jays.

As I write this post, the Blue Jays are down 2-0 in the ALDS, but by the time you read this email in your inbox (assuming you subscribe), game 3 will have already happened. Either the Jays will be on their way to a great comeback or the season will be over. I am remaining fiercely optimistic.

But in addition to the regular sports chatter, we also started talking about the possible economic benefits of the Blue Jays winning and being in the playoffs for the first time in decades. 

We assumed that 50,000 people buying tickets, heading downtown, and spending money on food, alcohol, parking, transit, taxis, and hotels, would be a great benefit to the local economy. And immediately I thought to myself: this would make a great blog post.

But it turns out that the local benefits of professional sports aren’t so clear cut.

There’s been a lot of research on public funding for sports stadiums and a lot of the research suggests that it may not be in the best interest of taxpayers. A considerable amount of the spending does not get retained by the local economy and instead gets siphoned off to the respective league and to concentrated private interests.

But Toronto already has the SkyDome, I mean, Rogers Centre . It’s a sunk cost. So looking forward, there must be some incremental benefits.

Well, a recent article in the Chicago Tribune asked this same question in light of the Cubs heading to the playoffs. And it turns out that it’s also not so clear cut.

Part of the problem is something called the “substitution effect.” When a sports team starts winning (and people jump on the bandwagon), money is simply redirected away from other forms of entertainment towards sports entertainment. In other words, instead of going to see a movie or going to the museum, people go to the game.

In fact, a 2001 study by Dennis Coates and Brad R. Humphreys called, “ The Economic Consequences of Professional Sports Strikes and Lockouts ”, found that during sports stoppages, 37 metro areas with professional sports franchises actually experienced no negative financial impact. And in many cases they performed better.

Interesting.

Having said all this, there’s a powerful sense of solidarity that takes over a city when everyone is rooting for the same team to win. And that’s hard to attach a value to.