Tuesday, December 11, 2012

Incentivize Develoment

By Greg

I led a walking tour at the American Planning Association (APA) conference in Philadelphia in 2007. As I herded the group of planners along Market Street on the east side of City Hall, one of my flock asked me, "how can there be a parking lot right here in the center of the city?" Good question. Philadelphians just take for granted that we have a slew of surface parking lots downtown, but in other cities this is not an economic possibility because of the cost of owning high-value land that is not maximizing revenue.

For years now I've been telling planner friends about my theory of why these parking lots can exist. It has to do with the way Philadelphia taxes property at a higher rate than land. It is extremely cheap to own land in Philadelphia, even in a very valuable location. A study in Minneapolis revealed the same problem and rationale for why there are so many downtown parking lots there, and proposed a solution: "taxing land at a higher rate than buildings."

In recent history there have been several mayor-appointed and independent tax reform studies in Philly, and they almost always recommend some kind of reform that has to do with changing the way we tax land. Cities that have implemented a full "land-value tax" have not found great success. Pittsburgh did this then repealed it. However, many cities tax both property and land in a way that makes it financially desirable to develop vacant land to its highest and best use in an area that has high or appreciating value.

This problem extends well beyond parking lots, though. There are thousands of vacant lots across Philadelphia, even in neighborhoods with high property values, like Northern Liberties. The same tax policy solutions could be used to incentivize development in neighborhoods as well as downtown.

Right now there are neighborhoods around the city that appear blighted, but where many vacant buildings and lots are owned by speculators--sitting on them, waiting for them to maximally appreciate. In a sense this causes the neighborhood to gentrify before anybody on the street knows it. The neighborhood still looks rundown, but it is already bought up. The reason those speculators don't develop their property sooner is because it is so cheap to sit on vacant land.

Adjusting the way we tax land would greatly change the development scene in Philadelphia. It would increase the pace of neighborhood redevelopment, and, importantly, give people on the ground a better visual cue about the state of their neighborhood's pace of development.

So why doesn't the City address this? The only thing I can think of is politics. There are companies that benefit from parking lots being cheap to own, and developers who don't want to pay more taxes for vacant land. But City Council should get beyond that and do something about this. Not only will it boost Center City development, but it will change the way neighborhood redevelopment operates. That will benefit the whole city, not just downtown.

No comments: