Vacant Space in NYC: How LVT Would Help

Vacant Space in NYC: How LVT Would Help For the Manhattan Borough President’s Forum on Land Value Taxation Baruch College, Newman Center, July 17, 2007 John Tepper Marlin, Ph.D. Principal, CityEconomist john@cityeconomist.com . www.cityeconomist.com Thanks to student intern Kacper E. Szczepaniak of Boston University for assistance with this paper and presentation.

Thank You, Borough President Stringer • For the excellent report, “No Vacancy?” • For drawing attention to the unutilized and underutilized land and buildings in Manhattan when so many people need affordable housing • For opening up discussion on the topic, having this panel and including me CityEconomist

Two NYC Property Tax Studies • From the 1999 NYU Law School-Furman Real Estate Center study (Martha Stark, project director): “NYC’s system of property taxation inhibits the construction of new housing by taxing vacant land at the lowest rate and multifamily housing at the highest rate.” • From the 2005 update (without Stark, now Finance Commissioner): “One of the reasons why housing affordability problems are so intense in New York City is the imbalance that exists between the supply and demand for housing.” CityEconomist

National and International Experience • The U.S. Conference of Mayors looked at using property taxes to encourage development of vacant land in 27 cities. • It could have added Providence and Washington, DC (where there was a backlash). • An international example: Istanbul, where “buildable” vacant land is taxed at three times the rate of built land. CityEconomist

Bill Vickrey’s Plan for NYC • The 1990 NYC Charter requires the City Comptroller to report by December 15 on the State of the NYC Economy and Finances. • To do this, Comptroller Holtzman created the Chief Economist post and named me in 1992. • To Hearings in December 1992 for the Economic Report, I invited Columbia Prof. William Vickrey, an active City Club member. • Vickrey laid out several Propositions for NYC that bear on improving use of vacant space. CityEconomist

Vickrey Was a Georgist • Henry George advocated reforms that would raise taxes on land. • In 1886 he ran for mayor of NYC on the ticket of the United Labor Party. He polled 2nd, ahead of Teddy Roosevelt but behind Tammany Hewitt; many suspected fraud. • He ran again in 1897 as an independent Democrat, but died of a stroke four days before the vote; 100,000 people attended his funeral; he was called the 3rd most famous American, after Twain and Edison. CityEconomist

Vickrey’s NYC Propositions • Vickrey’s propositions advocated urban efficiency and showed the way to achieve efficient use of land through appropriate tax policies. • His 1992 propositions were presented again in 1995 at a TRED conference. • The following year, Vickrey was announced a winner of the Nobel Prize for Economics. • He died within three days, on his way to a conference of fellow Georgists. CityEconomist

1.The Efficient Competitive City • LVT means taxing the “rents” – the extra value from being in a dense city with economies of scale. • Under competitive conditions LVT would be just sufficient to provide all needed revenues for city services. CityEconomist

EFFICIENT CITY: TAX EXEMPTIONS • Vickrey favored low taxes on labor, and taxes on land based on site value. Vacant land would be taxed at no lower a rate than built land. • He opposed exemptions as inefficient. City Project in 2005 estimated that 180 types of property-tax exemptions cost NYC $8 billion in 2004 revenues. In 1967, these exemptions applied to 33% of NYC assessed values. By 2004, the exemptions rose to 58 percent of assessed values. • The enormous Upper West Side developments subject to PILOTs will further Pac-Man NYC’s property-tax base. CityEconomist

2. Urban LAND Value • Vickrey started with the idea of a normal price for land. Being in a dense area was like have a gold mine on the land, or extra-fertile soil. The extra “rent” from density should is unearned. • “The extra site value resulting from urban density and attractions must be separated from ordinary site value.” • “A flat amount per square foot represents the value of surrounding land for agricultural or other purposes.” • “Extra site value is the value above the flat amount.” CityEconomist

3. Landlords as LVT Beneficiaries • Vickrey argued that landlords should favor LVT because they would not be taxed on buildings. • “If the landlords of New York knew what was good for them, they would voteenthusiastically for an added tax on site values to be devoted to lowering subway fares, especially for off-peak and for shorter trips, and improving the frequency and quality of the service.” • “Assuming that the subsidy would be used efficiently, this would increase … the attractiveness of the city and in the long run rais[e] site rents by more than the tax.” CityEconomist

4. Sprawl • Anticipating Chris Jones’s data on NYC metro sprawl, Vickrey said: • LVT “tends to diminish urban sprawl, increasing densities and the gross of tax site values and site rentals at the center.” • Jeffery Smith, Geonomics: “The speculative act of withholding central land is what causes sprawl, not the property tax.” CityEconomist

SPRAWL: U.S. Data, 2004 • Richard England, Lincoln Institute, 2004: “Between 1982 and 1997, developed land increased nationwide by 25 million acres, or 34 percent. • “Population grew 15.6 percent. • “So the average number of residents per developed acre fell by 13.6 percent nationwide.” • He concludes that the culprit is undertaxing land value. CityEconomist

5. Rents for Roadway Use • Vickrey urged congestion charges (regrettably not yet on Albany’s agenda) and variable parking fees. • He said charges should at least equal the marginal social cost of each trip, varying incrementally to avoid mini-peaks. • Marginal social cost depends on how long a car is in the congestion queue. A car arriving earlier is in the queue longer. • Charges should be by trip segments. • Much more: http://tinyurl.com/277uxc. CityEconomist

6. Competition Among Cities • If most cities are inefficient, efficient cities will attract labor and capital, raising property values and rents. • So landlords in efficient cities will get net rents. • But net rents from after-tax urban site values will be competed away through lower relative prices for their products, to the benefit of the population generally. • Net urban rents may remain in cities with unique features such as a harbor, an attractive environment, or excellence in entertainment, fashion, or finance. CityEconomist

Questions? John Tepper Marlin, Ph.D. Principal, CityEconomist john@cityeconomist.com . www.cityeconomist.com CityEconomist

Vacant Space in NYC: How LVT Would Help