Neutral Property Taxation

A major difficulty in implementing land/site value taxation is imputing the land value of built-on sites. The literature has focused on two alternatives. The first, residual site value, measures postdevelopment site value as property value less structure value, with structure value measured as depreciated construction costs. Residual site value would be relatively easy to estimate, but a residual site value tax system, which taxes land value before development and residual site value after development at the same rate is distortionary, discouraging density. The second, raw site value, measures postdevelopment site value as "what the land would be worth were there no building on the site (though in fact there is)." Raw site value taxation is neutral (does not distort the timing and density of development), but the estimation of postdevelopment raw site value would be complex so that assessment would likely be less fair and more arbitrary, contentious, and prone to abuse. This paper asks the question: Is it not possible to design a property tax system (taxation of predevelopment land value, postdevelopment structure value, and postdevelopment site value at possibly different rates) that employs the administratively simpler residual definition of postdevelopment site value and achieves neutrality? Under restrictive assumptions and subject to an important qualification, the paper provides an affirmative answer, and characterizes the tax rates that achieve neutrality. It also briefly discusses issues of practical implementation. Copyright 2005 Blackwell Publishing Inc..

Buyer-Type Effects in Conservation and Preservation Property Values

Properties can be bought by government agencies, land trusts, or private entities for conservation and preservation purposes, such as farmland preservation, wildlife refuges, other conservation, and cultural and historical preservation. There is variation in the dollars paid per acre across properties and across buyer type. An option value model based on future potential land uses is used to explain much of this variation. The data used in our analysis is sales transactions data for conservation and preservation purposes from throughout the United States. We find that much of the value of conservation properties is derived from future potential land uses, including housing, timber, recreation, and conservation. We confirm that public versus private buyers value options differently, which makes sense from a public good point of view, if markets are thin. Copyright Springer Science + Business Media, LLC 2006Land value, Preservation property, Option values,

The Property Tax as a Tax on Value: Deadweight Loss

Consider an atomistic developer who decides when and at what density to develop his land, under a property value tax system characterized by three time-invariant tax rates: τ V , the tax rate on pre-development land value; τ S , the tax rate on post-development residual site value; and τ K , the tax rate on structure value. Arnott (2005) identified the subset of property value tax systems that are neutral. This paper investigates the relative efficiency of four idealized, non-neutral property value tax systems [(i) “Canadian'' property tax system: τ V =0, τ S =τ K ; (ii) simple property tax system: τ V =τ S =τ K ; (iii) residual site value tax system: τ K =0,τ V =τ S ; (iv) two-rate property tax system: τ V =τ S > τ K > 0] under the assumption of a constant rental growth rate. Copyright Springer Science + Business Media, Inc. 2006property taxation, site value taxation, land taxation, deadweight loss,