As we’ve discussed before, land-value taxation is a smart tool for revitalizing cities. By raising the cost of land speculation, a land-value tax (LVT) would create clear financial incentives to develop underutilized properties near the urban core—helping to create new homes and businesses in the very places where demand is greatest.
The basic idea of LVT is to tax land at a higher rate than buildings. But there’s a significant obstacle to implementing LVT in Washington. Article VII of the Washington State constitution, which covers revenue and taxation, states:
The power of taxation shall never be suspended, surrendered or contracted away. All taxes shall be uniform upon the same class of property…
Would this requirement for “uniform” taxation make a split-rate LVT, in which land and improvements are taxed at different rates, unconstitutional?
Maybe. But I’m convinced that a glimmer of hope exists for proponents of LVT, which includes both old fans of 19th century political economist Henry George and converts from this new Sightline series.
With the sharp rise in Seattle real estate values over the last several years, you might assume that landowners have been champing at the bit to redevelop some of the low-value, dilapidated properties that they own in and around downtown.
Yet in many cases you’d be wrong. As it turns out, holding onto a crumbling building, and even letting it slowly deteriorate, can be a terrificbusiness proposition. As the surrounding neighborhood develops, growing in value by attracting new residents and businesses, a rundown piece of property can skyrocket in price. Landowners themselves have done nothing to boost the value of the neighborhood; they’re just taking a free ride on the coattails of their neighbors.
The King County Department of Assessments appraises property with the express intent of reflecting property at its “highest and best use,” defined by the Assessment office as:
If improved: Based on neighborhood trends, both demographic and current development patterns, the existing buildings represent the highest and best use of most sites.
We find that the current improvements do add value to the property, in most cases, and are therefore the highest and best use of the property as improved. In those properties where the property is not at its highest and best use, a nominal value of $1,000 is assigned to the improvements.
So based on appraisal data, most assessors seem to assume that downtown properties are put to their “best” use. Yet you can find quite a few properties assigned the default value—a measly $1,000—indicating that the “improvements” on the property are virtually worthless, and would be better replaced with, well, practically anything else. At times, assessors even assign buildings a value of $0, certainly the strongest possible statement that the property is not being put to good economic use.
What does a Seattle property with improvements assessed at $1,000 look like? What about one assessed at $0? Walking through Seattle’s Central Business District, six specific sites stuck out to my eye.
What are two things that Greg Nickels, Mike McGinn, and Ed Murray all have in common? If you said, “Roman Catholicism,” your knowledge of Seattle mayors is exceptional! Another thing they have in common is that, from their City Hall vantage point, each man had (has) the pleasure of viewing from their office the expansive, desolate site at the lower right of the picture below:
Aerial view of 3rd Ave and Cherry, and 4th Ave and Cherry St. Image by Steve Bowles (used with permission).
The view is very similar to what Seattleites could have seen at 4th Avenue and Cherry Street way back in February 1911:
Sound Transit Bus 554 makes its first non-freeway Seattle stop at 5th and Jackson in the International District. A first-time Seattle visitor departing there is greeted not by a vibrant streetscape, but by five vast surface parking lots: a bold but disappointing proclamation that even in the transit-friendly urban core, the car is still king.
Could a land-value tax help dethrone the automobile?
201 5th Ave S, International District, parking lot at 5:35 pm. Image by Jerrell Whitehead (used with permission).
Sightline has argued time and again that municipal parking rules have distorted housing markets and jacked up the price of rental housing. But the surface parking lots that dot the Northwest’s major cities are a symptom not so much of misguided parking rules, but largely of something else: land speculation.
500 S Main St. parking lot at 12:35 pm. Image by Jerrell Whitehead (used with permission).500 S Main St. parking lot at 5:30pm. Image by Jerrell Whitehead (used with permission).
Consider the lot to the left, at 500 S Main St. It’s right in the heart of Seattle’s International District and just a few blocks from Safeco and CenturyLink Fields. Owned by Fujimatsu LLC, the lot measures 27,000 square feet, about half the size of a football field. When I visited shortly after noon on a recent week day, 77 of its 100 spots were in use. By 5:30 pm, the picture speaks volumes: the lot was nearly deserted.
Although the lot’s owners have done very little to the property for years, it’s still been a sound investment. For 1998-99, King County appraised the two adjacent lots at $720,000 and $693,000, respectively. By 2014-15, those numbers had shot up to $2,016,000 and $1,764,000. Despite years of neglect, the value of the land nearly tripled. And that’s just the assessed value. Real-world property values (and gains) often far exceed the county’s assessments.
The reason the value of these lots grew so quickly is simple: nearby landowners and businesses, as well as the city government, invested in buildings and infrastructure that made the entire neighborhood more desirable. The lot owner does almost nothing to contribute to rising property values in the neighborhood. In fact, for most parking lots, the county finds that the “improvements” on surface lots are literally worthless, contributing no economic value.
Downtown Seattle holds some of the most valuable real estate west of Minneapolis and north of San Francisco. Yet a stroll through Seattle’s urban core reveals unwelcome surprises: rundown, decrepit buildings; empty land parcels; and surface parking lots on prime real estate, like the one below, just blocks away from high-rises worth tens or even hundreds of millions of dollars.
Parking lot at Pike & 2nd AVE. Image by Jerrell Whitehead (used with permission).
Is an underused (at midday), 63-spot parking lot the new normal for downtown Seattle? It shouldn’t be. Proximity to jobs, people, retail, and transportation should have made parcels like these ideal targets for new homes or office buildings. Yet a two-decade boom in downtown real estate has passed these properties by. For example, the Eitel Building is a historic building that is a stone’s throw from Pike Place Market, Seattle’s number one tourist attraction, and has been unoccupied above the ground floor since the 1970s. This marks four full decades of neglect and decay.
The Eitel Building at Pike & 2nd Ave. By Jerrell Whitehead (used with permission).
More striking is the juxtaposition with its immediate neighbor—a 38-floor glass and steel structure touted as “the West Coast’s most successful condominium high-rise.” Sorry, no vacancies, and resale prices begin at the low $1,000,000s!
The Eitel Building at Pike & Second Ave, Seattle. By Jerrell Whitehead (used with permission).
These pictures present just a few examples. There are plenty of other badly underutilized properties dotting the landscape of downtown Seattle, and there are undoubtedly similar cases in other major cities throughout the Northwest and beyond.
So how is it that, even in the core of the Pacific Northwest’s largest metropolis, on some of the most valuable real estate within city limits, you can find so much land essentially still sitting idle?
One of the biggest reasons is also one of the most obscure: the structure ofthe property tax.
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