Absentee landlords a barrier to neighborhood development

No one likes absentee landlords. A study on economic development of the Hilltop commissioned by the city earlier this year called these landowners a major challenge for the neighborhood. Anyone who has spent time in Columbus' struggling neighborhoods knows the Hilltop is not the only part of the city dealing with this problem.

Absentee landlords cause problems for neighborhoods because neglected properties drag down property values around them. If one landowner doesn't maintain their property, the values of all of the neighboring properties go down along with them.

In addition to the market incentives discouraging investment in economically disadvantaged neighborhoods, landowners are also discouraged from investing by property taxation. This is because improvements on their land lead to higher property taxes, leading to lower returns on investment.

The typical way governments combat these barriers to investment is through targeted tax abatements. By relieving developers of this cost on a case-by-case basis, local governments hope to increase investment in targeted neighborhoods.

This isn't the only way to combat barriers to development, though. An alternative strategy has been in place in Pennsylvania since the mid-1970s: a land-value tax.

Land-value taxes are taxes that are assessed not on the value of the property with improvements, but on the value of the land the improvements are built on. Thus, taxes don't go up as properties are improved unless those improvements lead to an increase in the value of the land it is built on.

This means landowners have extra incentive to develop their property. In the decades since Harrisburg, Pennsylvania, instituted its land-value tax, the number of vacant properties in the city decreased by 90 percent.

Land value taxes have other advantages over property taxes. For instance, because the supply of land is fixed, a tax on land can't be passed to renters the same way property taxes are. This makes these taxes especially progressive.

In addition, land-value taxes rise with local public improvements. So if the city builds a new road or park nearby, the value of the land increases and the cost of those improvements can be recaptured by the public sector.

The land-value tax is no new idea. Chinese Philosopher Mencius proposed land taxation as early as 300 B.C. Thomas Paine and Adam Smith both extolled the virtues of land taxation in the late 18th century. Economist Henry George's Progress and Poverty, which outsold all books in the last decade of the 19th century besides the Bible, was a treatise in support of a land-value tax.

If Columbus City Schools or other local government wanted to move to land-value taxation, though, it would likely require enabling legislation from the state. Republicans and Democrats both have reason to favor a more efficient and equitable system of taxation, but absentee landlords have reason to fight it. It's a lot easier to sit on land than to make it better.

Rob Moore is the principal for Scioto Analysis, a Columbus-based policy analysis firm.