Coordinating Opposite Approaches to Managing Urban Growth and Curbing Sprawl: A Synthesis

THOMAS L. DANIELS [*] ABSTRACT. The purchase of development rights to farmland and open space has recently gained in popularity as a growth management tool. A purchase of development rights program pays the landowner for the unearned increment in exchange for strong deed restrictions, limiting the use of the property. On the other hand, land value taxation, a modification of Henry George's Single Tax, would tax land more heavily than improvements, thus encouraging the development of land. While land value taxation and the purchase of development rights appear to be opposing fiscal policies, they could be employed together as part of a regional planning strategy to encourage in-fill development within and near cities and to curb sprawl by retaining farm, forest, and ranch lands. I Henry George and the Evolution of Land Policy IN A 1997 PUBLICATION OF THE LINCOLN INSTITUTE, several authors suggested that Henry George's ideas about land markets need to be refined and adapted to current situations of land use, taxation, and urban sprawl.' Writing in the Gilded Age of the nineteenth century, George felt that powerful financial interests threatened to create a monopoly in land ownership. The majority of people would not be able to afford land or would be forced to pay exorbitant prices for it. The result would be an inefficient underutilization of land resources. George's famous Single Tax was aimed at breaking the speculators' hold on land and improving the distribution of wealth in society. The Single Tax would apply to land only and would capture all or nearly all of the economic rent of land and eliminate all or much of the monopoly rent, while providing governments with significant tax revenues. A further advantage of the Single Tax is that it could not be passed from landowners to land renters or buyers, because all pure rents wo uld be collected from the landowner or seller. Economists almost universally agree that unearned increments or economic rents to bare land can be taxed away without any disruption to economic efficiency [2] or diminution of the value or income of land improvements. [3] These are cogent arguments for the use of the Single Tax since the tax would fall only on unearned increments to land value and not on rising property values caused by improvements from labor and capital. [4] These unearned increments would accrue from nearby public improvements or improvements by one's neighbors that create a rise in the value of one's land. Hence, the tax would tend to force a landowner to make additional investments in capital and labor to develop the property more intensively or else sell the property to someone who would make those investments. Henry George envisioned the Single Tax as the only tax that would be needed nationwide. As yet, the Single Tax has not been implemented in America in its pure form. The closest example has been the split-rate land value tax that taxes land at a higher rate than buildings. Land value taxation embodies George's concept of differential tax rates on land and buildings. George's Single Tax-the extreme example of land value taxation--falls completely on land. Land value taxation levies a higher tax rate on land than on buildings, unlike the traditional property tax which applies the same tax rate to both land and buildings. For example, since 1979, the City of Pittsburgh has taxed land for property tax purposes at a rate five times as high as that on buildings. In the decade after the introduction of this variation of the Single Tax, the value of new construction in Pittsburgh increased by 70 percent compared to 1960-1979. The higher land tax may have compelled the owners of open land to construct buildings and to move up the timing of construction. In 14 midwestern cities not utilizing higher land taxes over the same two time periods, only Columbus, Ohio experienced an increase in building activity. …