Housing crisis

Reviews | Tax land, not buildings, to help the housing crisis

Regarding the July 4 front page article “As inflation rises, so does the housing crisis”:

We have some general inflation, but we have particular problems with the lack of affordable housing. That’s partly because of posh zoning and the wrong kind of property tax. In most jurisdictions buildings and land are taxed, with the value of land often being understated in practice.

This means that someone considering building an apartment building will not find it profitable to do so until rents have increased enough to cover building tax, other expenses and a return on capital. Someone who invests in vacant land in a populated area with the intention of keeping it vacant until, perhaps decades later, he can sell it at a good profit will generally pay low taxes on it. As a result, there are not enough dwellings built, so what there is costs too much.

An important reform is to tax real estate only on the value of the land, not on buildings or other improvements. This way, land could be purchased much cheaper and real estate bubbles, which are land price bubbles, would not inflate. People could build houses and apartments without increasing their tax bills, so we would have more housing, which would make it cheaper. Some might criticize this proposal on environmental grounds, but by encouraging infill development, it would also have the merit of reducing rural sprawl.

Nicholas D. Rosen, Arlington

The author is president of the Center for the Study of Economics.