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China has experienced rapid economic growth since 1978, when it adopted a policy of opening up to the world and instituting economic reform. It has become the second largest economy measured by the country’s GDP, and its tax revenue has experienced an average annual growth of about 20 percent since the fiscal reform of 1994.
However, many subnational governments in China have experienced fiscal stress and incurred large local debt in recent years because of numerous unfunded central mandates and the large fiscal gap between expenditure responsibilities and revenue capacity. For example, in 2008 subnational government in China accounted for 79 percent of total government expenditure, but only 47 percent of total government revenues (Man 2011).
Unlike many developed countries, China’s local governments (provincial, prefecture, county, and township) have not been granted any legal authority for taxing or borrowing, and the property tax plays a very limited role in the local public finance structure. As a result, many local governments turn to extra-budgetary revenue sources, fees for leasing land use rights, other fees and surcharges, and indirect borrowing from banks to finance infrastructure investment and local economic development.
During the period from 1991 to 2008, the land leasing fees (also known as land transfer fees) increased from 5.7 percent of total local budgetary revenue to 43.5 percent. The overreliance on land leasing fees has been criticized as an important factor in pushing up housing prices and in the growth of corruption cases and land disputes in China.
Problems with the Current Tax System
The current land and property tax system in China generates a limited amount of tax revenue, even though five types of taxes are levied on land-related property at various stages of production (table 1). Local governments collect the Farmland Occupation Tax and Land Value Added Tax (LVAT) at the stage of land acquisition and transaction. At the possession stage, the Urban Land Use Tax and Real Estate Tax are collected, while the Deed Tax is levied when the ownership of the property is transferred.
This tax system has many problems and warrants structural reform. First, various taxes on land and property account for only 15.7 percent of local tax revenues. It is an unstable and inadequate revenue source for the Chinese local governments. Local government officials have relied upon other revenues sources, including leasing state-owned land for a large lump-sum fee from developers, to finance infrastructure development and capital projects. In 2010, Chinese local governments collected 2.7 trillion RMB from land leasing fees in addition to 8.3 trillion RMB in taxes and other budgetary revenues. The ratio of leasing fees to tax revenue was 32.5 percent, compared to 4.5 percent in 1999.
Second, China’s current property tax structure focuses more tax burden at the transaction stage than the possession stage. For example, revenues collected from the annual urban land use tax and the real estate tax at the possession stage accounted for only 6.44 percent of local tax revenues in 2008, while about 9.25 percent of local tax revenue was raised at the land development and property transaction stages.
Third, owner-occupied residential property was not included in the tax base for the current real estate tax, thus significantly restricting the government’s ability to capture value from the booming housing market that was fueled by the privatization of public housing, income growth, and massive urban infrastructure investment. By 2010, homeownership rates reached 84.3 percent of the formal urban housing stock, and housing values have experienced substantial increases in the past five years in many big cities (Man, Zheng, and Ren 2011). But the exclusion of the residential properties from real estate tax has resulted in wealth disparity and excessive demand for housing for investment and speculative purpose, raising vacancy rates in many coastal cities.
Finally, unlike the property tax system in many developed countries, the real estate tax in China is not levied on the assessed value of the property. Instead, it is based on the original price minus 10 to 30 percent of depreciation at a rate of 1.2 percent or levied at 15 percent of the actual rental income for leasing property. Government officials have little experience in the mass appraisal of the market value of existing property, a fundamental skill for establishing a modern property tax system.
Recent Developments in Property Tax Reform
The Chinese central government has been exploring the possibility of reforming its current land and property tax system since 2003, when it first officially proposed to establish a modern property taxation system. Six cities were selected to con-duct pilot projects in 2006, and that number was expanded to 10 cities a year later.
In 2010 the State Administration of Taxation (SAT), which is in charge of this pilot project, ordered that every province must choose at least one city to experiment with property value assessment in order to verify the housing sales price self-reported by home purchasers for the deed tax. These experiments have played an important role in the technical and information-based preparation of mass appraisal for future property value assessment. On January 28, 2011, the cities of Shanghai and Chongqing were permitted to collect property taxes on newly purchased second homes or luxury residential property, respectively.
Major Achievements
China’s property tax reform aims to establish a system to tax the existing property (including both land and housing structures) based upon its assessed value on an annual basis to make the tax a significant revenue source for local governments. This system will utilize various assessment methods such as market comparison, cost, and income approaches and will be applied to business and industrial property as well as residential property, including owner-occupied housing.
Different versions of computer-assisted mass appraisal (CAMA) have been studied and subsequently implemented by some pilot cities, such as Hangzhou, Dandong, and Chongqing. The SAT has been training officials from local tax bureaus in every province about CAMA system development and its applications. It has also tried to establish technology standards for each assessment approach.
In 2005, the SAT compiled a Real Property Assessment Valuation Regulation Trial that specified 12 chapters and 40 provisions covering data collection, standards, and the CAMA system. All the pilot cities have finished the simulation assessment and have calculated the tax burden and tax revenue according to different tax rate scenarios. In 2011 at least one city in each province had been selected to conduct property value assessment of newly purchased property for the collection of the deed tax.
The most important development occurred in early 2011, when Shanghai started to collect taxes on newly purchased second homes of residents and first homes of nonresidents based on transaction value, after the exclusion from the tax base of 60 square meters per person. The city of Chongqing is targeting the existing single-family residence and newly purchased luxury apartments of residents or newly purchased second homes of nonresidents. The program excludes 180 square meters for the single-family residences and 100 square meters for apartments in Chongqing.
About 8,000 parcels are reported to be levied a property tax in these two cities combined, although after this one-year experiment only a small amount of tax revenues has been collected, which was intended to finance low-income housing. Although the tax base, tax rate, and the collections are all very small in the two cities, these efforts represent a big step forward for property tax reform in China.
Future Challenges
China’s property tax reform still faces enormous challenges, although it is now much better understood by Chinese citizens and the media. First, it encounters resistance from various influential interest groups. The biggest opponents of a property tax are local government officials, in addition to real estate investors and speculators. Many local governments believe that the adoption of such a tax will lower housing values and consequently lower the demand for land, thereby substantially reducing the land leasing fees obtained from the leasehold of state-owned land. Furthermore, local government officials in China are evaluated on their role in spurring local GDP growth, and infrastructure investment projects are often used as a stimulus to boost local economic development. Officials want unlimited access to land leasing fees because they can be raised and spent with little scrutiny, and they can generate a large amount of revenue for use during an official’s tenure.
A second challenge is the slow progress on legal and assessment preparations for a property tax system. Property tax laws and regulations need to be established, including assessment laws and standards for assessors. Up to 100,000 assessors will have to be trained and certified to these standards. Third, consensus is still lacking with respect to the specifications of the tax base, exclusions, and exemptions; the assignment of responsibilities for administration, rate setting, and assessment; and the allocation of tax revenues. Fourth, general unfamiliarity with the property tax leads to continued misunderstanding and misperceptions about the tax.
At the same time, more urban dwellers realize that an annually collected tax on the assessed value of real property, both business and residential, can serve as an efficient and sustainable revenue source for local governments and help to reduce their reliance on land transfer fees and charges that contribute to higher house prices. Following the central government policy of house purchase restrictions and tighter monetary policy, fees from land leasing in 2011 have started to fall in many cities.
According to a recent report by the China Index Institute (2012), land transfer fees in 130 cities have decreased by 11 percent compared to 2010. In Shanghai and Beijing, they decreased by 16 and 35.7 percent, respectively. This rapid decrease may also offer opportunities for local governments to look for more sustainable ways to seek a balance between promoting economic growth and providing public goods and services. In the long run, establishing a property tax system to substitute gradually for the land transfer fees can offer an efficient, equitable, and sustainable way to finance local development and government spending.
The property tax has been perceived as an effective way to lower housing prices, dampen property speculation, and reduce vacancy rates. Many researchers believe that local governments tried to limit land supply to bid up land prices and maximize revenue, resulting in the rapid increase in housing prices and lack of affordable housing in urban China. Levying taxes on residential property can increase the opportunity cost of holding property vacant or idle and reduce incentives for speculative behavior. The tax is also viewed as an effective way to narrow the gap in income and wealth among urban residents and discourage speculative investment in the housing sector.
Conclusions
The property tax reform in China is making progress in research and in experiments with applications, and it has begun to accumulate momentum toward better understanding and acceptability among citizens and local governments. But the successful establishment of a property tax as a major revenue source in a modern local public finance system requires not only assessment techniques and tax design but also political determination and administrative reform. This reform could lead to a fundamental change in intergovernmental relations and the role of government in China’s political and economic structure.
The Lincoln Institute began to support research on property taxation in partnership with the Chinese government in 2004, in conjunction with the Development and Research Center of the State Council (DRC), Ministry of Finance (MOF), and State Administration of Taxation (SAT). In 2007 the Peking University–Lincoln Institute Center for Urban Development and Land Policy (PLC) was established in Beijing, in part to help organize international conferences and training programs for government property tax officials in the pilot cities. The center continues to support international and domestic experts in conducting research and demonstration projects on property taxation and related issues.
About the Author
Joyce Yanyun Man is senior fellow and director of the China Program at the Lincoln Institute of Land Policy, and serves as director and professor at the Peking University-Lincoln Institute Center for Urban Development and Land Policy at Peking University in Beijing.
References
China Index Institute. 2012. http://www.chinanews.com/estate/ 2012/01-04/3580986.shtml
Man, Joyce Yanyun. 2011. Local public finance in China: An overview. In China’s local public finance in transition, eds. Joyce Yanyun Man and Yu-Hung Hong. Cambridge, MA: Lincoln Institute of Land Policy.
Man, Joyce Yanyun, Siqi Zheng, and Rongrong Ren. 2011. Housing policy and housing markets: Trends, patterns and affordability. In China’s housing reform and outcomes, ed. Joyce Yanyun Man. Cambridge, MA: Lincoln Institute of Land Policy.
National Bureau of Statistics. 2009. China statistical yearbook. Beijing: China Statistics Press.
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Since 1978, the Chinese government has pursued various economic and housing reforms to expand private property rights in housing and to promote home ownership through the commercialization and privatization of urban public housing. This has involved terminating the old system of allocating housing units through public-sector employers and establishing a more market-based system of housing provision. The government now provides affordable housing by subsidizing commercial housing purchases or by offering low-rent public (social) housing to middle- and low-income families. At the same time, it relies on the private commercial housing market to meet the needs of higher-income groups.
Recent Housing Reform and Outcomes
China’s housing policies experienced a drastic change in 1998 when the central government ended direct housing distribution to employees through the former danwei or employer-based system. According to government plans, the affordable housing system targeted at middle-income households was established to provide support to nearly 70 percent of urban families. It also introduced housing cash subsidies to new employees and set up a Housing Provident Fund—a compulsory housing savings system to provide subsidized loans to employed homebuyers. Low-rent public housing is provided by the government to low-income urban households, while commercial housing is provided by the market to meet the needs and demands of high-income families at the top 15 percent of the economic spectrum that have access to mortgage financing (Wang 2011).
This housing reform has resulted in a vigorous and fast-growing urban housing market and greatly improved housing conditions for urban residents. For example, the floor area per capita in urbanized areas increased from 6.7 square meters in 1978 to 28.3 square meters in 2007, and the home ownership rate reached to 82.3 percent in urban China in 2007 (Man, Zheng, and Ren 2011).
However, with urban housing prices skyrocketing since 2005, housing affordability has become a major issue in a number of large cities, and municipal governments have been called upon to increase the provision of affordable housing to middle- and low-income households. Government policies have been implemented in an attempt to stabilize urban housing prices, to discourage speculative behavior of homebuyers, and to reduce both the excessive lending practices of state-owned banks and the possible financial risks associated with the housing sector.
Urgent Need for Affordable Housing
Affordable housing is often defined as an adequate dwelling where less than 30 percent of monthly household income is devoted to rent, or where the dwelling’s purchase price is less than three times a household’s annual income. The housing price-to-income ratio (PIR) is the basic affordability measure for housing in an urban area. It is generally defined as the ratio of the median house price to the median family income. In the Global Urban Observatory Databases of UN- HABITAT, PIR is one of the important urban indicators, and a ratio between 3 and 5 is considered normal or satisfactory. In the United States and Canada, the PIR is 3.2 and 3.5, respectively, which meet the international standard for a normal or affordable level of housing (Demographia 2009).
Our study used the Large-Sample Urban Household Survey data collected by the National Bureau of Statistics of China to calculate the PIR in 2007 for urban China, and found it to have a value of 5.56 nationwide (Man, Zheng, and Ren 2011). This ratio falls in the category of “severely unaffordable” according to the criteria proposed by UN-HABITAT, and is well above the normal range of 3 to 5. It indicates that the median price of the housing stock in the sample of 600 Chinese cities (based on the survey of 500,000 urban households) is more than five times annual household median income.
The Current Situation and Challenges
Affordable housing is often measured in terms of median values and incomes, but the concept is applicable to both renters and purchasers in all income ranges. Affordable housing in China, commonly known as “economical and comfortable housing,” is designed to be available to middle- to low-income households, including public-sector employees, to encourage home ownership.
In general, the Chinese central government sets polices and mandates with respect to affordable housing, and the subnational governments, cities in particular, are responsible for the construction, financing, and management of that housing. The central government does not provide financial support to provincial and local governments for affordable housing through its budgetary spending or intergovernmental transfers, except for a few subnational governments in the fiscally strained and underdeveloped central and western regions.
Local governments are required to provide free land, reduce government charges and fees, and control developers’ profits to lower the housing price for those who are qualified based upon government eligibility standards. In some cities, such as Beijing, affordable housing also includes price-controlled commercial housing whose price is held down by the provision of reduced land use fees and charges, as well as favorable land allocation by the government to help lower- and middle-income families become homeowners. The Housing Provident Fund, a compulsory saving plan with contributions by both employers and employees for housing purposes, helps employees buy a house with subsidized loans.
Local governments provide state-owned land to affordable housing projects through appropriation mechanisms. They usually appropriate land to developers who finance, construct, and sell the economical and comfortable housing units to the people considered eligible according to government standards and regulations. Middle-income families seeking market-oriented commercial housing may receive a subsidized loan from the Housing Provident Fund. With housing prices lingering at levels inaccessible even to average salary earners, the current affordable housing system has encountered a number of serious challenges.
First, there is an enormous and growing demand for affordable housing in China. By the end of 2008, there were about 7.4 million low-income urban households in need of government support for housing (Lin, forthcoming). In addition, government population and labor statistics indicate that cities have an estimated “floating population” of 147 million, most of whom are migrant workers who often fall within the low-income group. At the current rate of urbanization, there will be an increase of about 10 million people in cities every year. Most of them will be unskilled and semi-skilled workers in the low- and middle-income levels in need of housing assistance.
Second, affordable housing accounts for only a small portion of the total housing stock, underscoring inadequate government support for middle- and low-income households in urban China. Our research reveals that government-sponsored low-rent housing, as well as heavily subsidized economical and comfortable housing, accounted for only 7 percent and 4 percent of the total housing stock on average in urban areas, respectively (figure 1). In contrast, the two most prevalent types of housing are commercial housing (32 percent) and privatized public housing (34.2 percent).
Among the 256 prefecture-levels cities we studied, the median share of the total housing stock that was affordable housing was 5.57 percent. One-third of the cities had less than 5 percent of affordable housing in the total housing stock, indicating a seriously inadequate supply of affordable housing for low- and middle-income urban households. The underdeveloped private rental market in China further aggravates this problem.
Figure 2 reveals that investment in economical and comfortable housing has barely increased in contrast to the rapid rise of investment in commercial housing during the period between 1997 and 2007. The completed floor area of economical and comfortable housing as a share of the total decreased between 1999 and 2007, contributing to the chronic shortage of affordable housing in large cities. In addition, the eligibility criteria is either too high or the enforcement is problematic. As a result, figure 3 shows the coverage of affordable housing is overly broad, benefiting more high- and middle-income families than lower-income households, and thus causing accusations of corruption and calls for reform.
Third, local governments in China lack incentives and financial means to provide affordable housing. The fiscal reform of 1994 left subnational governments with the obligation to provide nearly 80 percent of total government expenditures, but with direct receipt of only 47 percent of total government revenues (Man 2010). Such fiscal imbalances, plus many unfunded central government mandates and expenditures related to interjurisdictional competition, have driven many local governments to rely on land leasing fees for revenue to finance infrastructure investment and economic development.
Local governments prefer offering state-owned land to the highest bidder among developers through the auction process to maximize revenue, and they have little incentive to provide land for the construction of affordable housing for low- and middle-income families. In addition, the financing of affordable housing in China depends upon funds from the Housing Provident Fund, but its deposits come from sources such as fees from land transfers that are unstable and inadequate to sustain affordable housing investment.
According to a recent report of the Chinese National Auditing Office (CNAO 2010), some cities, including Beijing, Shanghai, Chongqing, and Chengdu, have failed to collect the 10 percent of funds from the net profit of land transfer fees earmarked for low-rent housing construction as required by government regulations. A total of 14.62 billion yuan (about US$2.2 billion) was not collected during the 2007–2009 period, accounting for about 50 percent of the total 29.68 billion yuan (US$4.47 billion) that was due, according to CNAO’s survey of the 32 major cities.
Finally, the current affordable housing system in China is targeted only at urban residents who have city residence permits as part of its household registration system (commonly known as the hukou system). Migrant workers, floating populations, and others without urban residence permits are not covered. These people have to find shelter in the informal housing market, such as urban villages with substandard living and sanitation conditions.
Furthermore, this system suffers from poor administration, widespread corruption, and even fraud. For example, many ineligible applicants have received low-rent housing, and a number of high-income households own government-subsidized economical and comfortable housing units. At the same time, many qualified families have been denied housing assistance.
Conclusions
The rapidly rising housing prices and lack of affordable housing for low- and middle income urban households in China, particularly in big cities, have posed risks and challenges for a stable and harmonious society as sought by the Chinese central government. The current issues and challenges in the affordable housing system warrant attention and support from the Chinese government and the entire country to search for cost-effective and equitable public policies to deal with affordable housing needs to ensure sustainable development and a harmonious society in the future.
The government needs to redouble efforts to curb speculative housing activities, increase land supplies for affordable housing construction, and use fiscal policies and tax incentives to encourage private developers to participate in the provision and management of affordable housing. Moreover, China should establish an efficient and effective local public finance system and a modern property tax to diversify local government revenue sources. This would help reduce reliance on the leasing of public land for revenue and would encourage the supply of more land for low- and middle- housing. Chinese governments also should accelerate the development of private rental markets and encourage the private sector and nonprofit organizations to participate in the construction, financing, and management of housing for middle- and low- income families.
About the Author
Joyce Yanyun Man is senior fellow and director of the Program on the People’s Republic of China at the Lincoln Institute; director of the Peking University–Lincoln Institute Center for Urban Development and Land Policy in Beijing; and professor of economics in the College of Urban and Environmental Sciences at Peking University.
References
Chinese National Auditing Office (CNAO). 2010. Audit report on 19 municipalities and provinces for government-invested affordable housing during the period 2007 to 2009. No. 22. http://www.audit.gov.cn/n1992130/n1992150/n1992500/2596931.html
Demographia. 2009. The Fifth annual Demographia international housing affordability survey. http://www.demographia.com/dhi.pdf
Lin, Jiabin. Forthcoming. The design of China’s affordable housing system. In Low-income housing in China: Current issues and policy design. Beijing, China: Commercial Press.
Man, Joyce Yanyun. 2010. Local public finance in China: An overview. In China’s local public finance in transition, eds. Joyce Yanyun Man and Yu-Hung Hong. Cambridge, MA: Lincoln Institute of Land Policy.
Man, Joyce Yanyun, Siqi Zheng, and Rongrong Ren. 2011. Housing policy and housing markets: Trends, patterns, and affordability. In China’s housing reform and outcomes, ed. Joyce Yanyun Man. Cambridge, MA: Lincoln Institute of Land Policy.
Wang, Ya Ping. 2011. Recent Housing Reform Practice in Chinese Cities: Social and Spatial Implications. In China’s housing reform and outcomes, ed. Joyce Yanyun Man. Cambridge, MA: Lincoln Institute of Land Policy.
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Una versión más actualizada de este artículo está disponible como parte del capítulo 7 del CD-ROM Perspectivas urbanas: Temas críticos en políticas de suelo de América Latina.
Muchos centros históricos de América Latina han sido el objeto de iniciativas gubernamentales y privadas para la rehabilitación de los edificios y para situar estas zonas al servicio de la industria del turismo. En la mayoría de los casos estas iniciativas han tenido como consecuencia el desplazamiento de los residentes de bajos ingresos o de toda la actividad residencial en conjunto, debido a la comercialización y el aburguesamiento del distrito (Scarpaci 2005). Más recientemente, la rehabilitación de estos centros históricos se ha enmarcado dentro de debates e iniciativas más amplios que pretenden la recuperación de los centros de las ciudades (históricos o de otro tipo) dado su papel crucial como símbolos colectivos o como espacios de interacción social, o bien por su eficacia potencial en calidad de distritos urbanos densos con buena cobertura de servicios (Pérez, Pujol y Polèse 2003; Rojas 2004).
Este artículo pretende profundizar este debate basándose en la experiencia del centro histórico de Ciudad de Panamá, el llamado “Casco Antiguo”. En él se describen algunas políticas innovadoras recientes que han explorado las intersecciones entre el turismo, la vivienda asequible, el empleo y la cultura dentro de un contexto histórico, y deduce algunas enseñanzas y perspectivas útiles.
El Casco Antiguo y la política de desarrollo inclusivo
El Casco Antiguo es la segunda ciudad de Panamá colonial, fundada en 1673 después de que el primer asentamiento se incendiara durante una invasión pirata. Su máximo apogeo tuvo lugar entre 1850 y 1920, cuando se desarrollaron los proyectos de construcción del ferrocarril y los canales que atraviesan el istmo, y la mayor parte de su arquitectura refleja la influencia de esa época. El barrio (aproximadamente 44 hectáreas) fue declarado monumento histórico nacional en 1976 y Patrimonio de la Humanidad de la UNESCO en 1997.
El Casco Antiguo comenzó a pasar de ser un centro urbano multifuncional y socialmente diverso a un vecindario residencial predominantemente de alquiler para las clases medias y los inmigrantes procedentes de las zonas rurales hacia la década de 1920, cuando la élite económica se mudó a nuevos asentamientos suburbanos de estilo estadounidense y la ciudad comenzaba su expansión hacia el este. En las décadas siguientes, el Casco Antiguo perdió muchas de sus funciones urbanas centrales, mientras que su población fue empobreciéndose cada vez más. Hacia la década de los setenta, muchos edificios habían sido abandonados por sus propietarios, y la ocupación de edificios comenzó a ser patente. No obstante, algunas instalaciones gubernamentales importantes, como el Palacio Presidencial y un puñado de otras instituciones, permanecieron en la zona, manteniendo cierta relevancia metropolitana para lo que primordialmente era un vecindario residencial grande de bajos ingresos.
Durante la década de 1970 y 1980 el gobierno elaboró sus primeros planes de reurbanización pensados para el turismo. Se renovaron plazas públicas y monumentos, pero los trabajos se interrumpieron por la crisis política que ocupó la mayor parte de la década de los ochenta. A principios de los años noventa, el sector privado inició sus propios proyectos de renovación, que han seguido siendo en su mayoría proyectos de construcción de bloques de apartamentos de lujo con espacio comercial en las plantas bajas. Los incentivos fiscales y económicos aprobados en 1997 propiciaron una oleada de proyectos y planes privados, pero muchos edificios sencillamente quedaron vacíos y sin restaurar. Entre 1990 y 2000 el censo reveló que el vecindario había perdido cerca de la tercera parte de su población, y en 2004 uno de cada seis edificios estaba cerrado y cubierto por tablones o en ruinas.
En los últimos años se han producido dos hechos significativos. Por un lado, Ciudad de Panamá ha entrado en un período de bonanza inmobiliaria propiciada por el turismo y por el mercado internacional de jubilados, hecho que ha beneficiado al Casco Antiguo en forma de numerosos proyectos de construcción de bloques de apartamentos y hoteles. También han ayudado las sanciones del gobierno para los edificios abandonados. Por otro lado, se ha implementado una política social explícita para la comunidad de bajos ingresos, que reemplaza el consenso tácito asentado desde hace mucho tiempo entre el gobierno y el sector privado sobre la necesidad de expulsar a esos residentes y aburguesar y/o comercializar toda la zona.
La nueva política social se ha centrado en dos tipos de programas: vivienda asequible y capacitación laboral. Hasta el momento se han rehabilitado cuatro edificios históricos propiedad del gobierno, que han producido 52 apartamentos de uno y dos dormitorios; éstos a su vez son alquilados por un órgano gubernamental, la Oficina del Casco Antiguo (OCA), a residentes de largo plazo, la mayoría de los cuales carecen de historial crediticio. Otros tres edificios están en proceso de rehabilitación y cinco más en fase de planificación. Los edificios ofrecen alternativas de vivienda adecuadas, además de espacios comerciales en las plantas bajas, que actualmente se alquilan a establecimientos asentados en el vecindario durante mucho tiempo, que también se enfrentaban a un desalojo.
En el ámbito de la capacitación laboral, se han ofrecido cursos en las áreas de rehabilitación de edificios, servicios de hostelería y restauración, artes culinarias, servicios turísticos e idiomas. Esta experiencia ha cambiado la línea de trabajo que ha pasado de ser simplemente uno de los muchos tipos de programa establecidos por OCA (junto con la rehabilitación de monumentos o la mejora de infraestructuras) a formar parte central de la nueva visión de “desarrollo inclusivo” del barrio.
Las enseñanzas han sido muchas e importantes y nos han permitido comprender mucho mejor los desafíos y el impacto que tienen las políticas de vivienda asequible, turismo y patrimonio cultural.
Siete enseñanzas clave
1. Vivienda asequible es mucho más que construir nueva vivienda que sea accesible.
A pesar de las condiciones deplorables de la vivienda, muchos residentes del Casco Antiguo se aferran al vecindario debido a sus lazos emocionales y por una serie de razones prácticas. En Ciudad de Panamá, las familias de bajos ingresos por lo general tienen que construir sus propias viviendas ocupadas en suelo ubicado en la periferia urbana, lejos de donde se concentra el empleo y los servicios urbanos adecuados, y aquí es también donde se suelen ubicar los nuevos proyectos de vivienda pública. El tiempo de desplazamiento al trabajo y los costos de transporte asociados pueden ser enormes − hasta 5 horas diarias y un 40 por ciento de los ingresos familiares, respectivamente. En este contexto, las políticas de vivienda asequible que mejoran las condiciones de la vivienda a costa del exilio urbano son contraproducentes e irresponsables (Espino 2007).
2. Para muchas familias de bajos ingresos, su hogar es también su negocio. Mientras que las clases medias y altas por lo general pueden permitirse separar su residencia del lugar de trabajo, y por lo tanto, viven y trabajan casi en cualquier lugar de la ciudad adonde se pueda ir en automóvil, los pobres de la ciudad a menudo necesitan combinar ambos usos. En muchas ciudades de América Latina la actividad informal constituye una importante fuente de ingresos familiares, y el lugar de residencia típicamente alberga una actividad comercial, que a su vez requiere una buena ubicación comercial. Los residentes se benefician en gran medida de vivir en partes de la ciudad accesibles y animadas, y los barrios históricos como el Casco Antiguo tienen la estructura urbana adecuada para este tipo de actividad.
En el Casco, muchos de los ocupantes de las nuevas unidades de vivienda asequible han establecido sus negocios y servicios, por ejemplo, de artesanía, calzado o sastrería, que sirven a una clientela metropolitana procedente del creciente tráfico peatonal local e internacional que el turismo ha llevado al barrio. Irónicamente, ahora que estos vecindarios ubicados en el centro por fin pueden comenzar a beneficiarse de la mayor seguridad y del ambiente que les proporciona el turismo, las familias suelen ser desplazadas.
3. La mezcla social urbana es esencial para el desarrollo inclusivo. Rehabilitar un barrio histórico sólo para los pobres tiene tan poco sentido como aburguesarlo por completo. Todo el mundo necesita seguridad, paisajes urbanos agradables y tráfico peatonal con poder adquisitivo, y los pobres de la ciudad no son una excepción. Una mezcla saludable de urbanizaciones asequibles y de categoría beneficia a todos.
4. Los proyectos de vivienda asequible no son una amenaza para la inversión de alto nivel (al menos no en los barrios históricos). En el Casco Antiguo, los proyectos de vivienda asequible de hecho se han convertido en punta de lanza de una inversión privada de alto nivel, al actuar como pioneros en zonas del barrio muy deterioradas y abrir la puerta a promotores privados menos atrevidos. Para empezar, los residentes y usuarios de altos ingresos del Casco suelen ser más tolerantes de la diversidad social que los núcleos familiares de clase media típicos. En consecuencia, los valores de la propiedad en el Casco Antiguo continúan su tendencia a la alza.
5. Las oportunidades de vivienda asequible en el centro deberían ser permanentes. En entornos de inflación alta como el Casco Antiguo, la construcción de unidades de vivienda asequibles y su posterior venta en el mercado pueden estimular la reventa, la especulación y la pérdida de viviendas asequibles. La reventa de unidades asequibles debe estar estrictamente controlada por medio de restricciones en los títulos de propiedad, y el alquiler sin fines de lucro debería considerarse como una opción seria en tales casos. El romanticismo de la propiedad debe reemplazarse por un firme compromiso de servir a la población existente y de ampliar las ventajas de la inclusión urbana a las generaciones venideras. Los gobiernos y las agencias sin fines de lucro deben garantizar un conjunto razonable de edificios para este fin.
6. Es positivo un cierto grado de separación, pero sin extremismo. Los proyectos de vivienda asequible del gobierno de Panamá se centran en una zona específica por motivos históricos (accidentales). Sin embargo, esta zona está rodeada de otras destinadas a una urbanización de lujo. Esta geografía permite tanto cohesión como interacción social, concentrando una vida comunitaria activa y unos servicios comunitarios adecuados. Los negocios como las tiendas de alimentación y las peluquerías que sirven a las poblaciones de bajos ingresos son bastante diferentes de sus contrapartidas para la clase media, en cuanto a los productos y servicios que ofrecen, los precios y los horarios de atención. Una densidad crítica de clientes permite a estos establecimientos desempeñar sus funciones, mientras que una estructura urbana abierta aumenta su base de clientes potenciales, abriéndose a otras clases sociales.
Hay que tener presente que la segregación urbana, tanto en sus aspectos positivos como negativos, no sólo afecta a la vivienda, sino también a todo el repertorio de actividades que componen un vecindario. Por este motivo, proteger los negocios formales de bajos ingresos del vecindario para evitar que sean desplazados es un componente integral de los programas de vivienda asequible en las zonas de rehabilitación. Por otro lado, debe reservarse y fomentar espacio para instituciones de categoría que se sitúen dentro o en las cercanías de estas zonas. Museos, fundaciones, centros culturales o atracciones turísticas pueden beneficiarse de estar en estas comunidades y viceversa.
7. La cultural popular interesa al turismo más allá de lo evidente.
Las poblaciones de bajos ingresos están tan ansiosas por participar en el comercio turístico como cualquier otro sector, pero normalmente sólo se las incluye si tienen algo de folklore que vender o aportar. La cultura contemporánea cotidiana de estos grupos, incluidas su comida y su música, tiende a ser despreciada y tildada de vulgar o poco interesante. Hasta la fecha la OCA ha tratado de promocionar sobre todo la cultura culinaria del barrio, ayudando a organizar a los proveedores para que participen en eventos culturales masivos en la zona. En otro proyecto, la historia familiar y vital de algunos residentes de toda la vida en el barrio se ha registrado y publicado en formato de libro. Se ha dado publicidad a sus residencias como lugares que los turistas pueden visitar para mantener una conversación informal sobre “los viejos tiempos”. Este prometedor campo de las industrias de la cultura popular tiene mucho por descubrir.
Conclusiones
Dado su carácter de atracción cultural, los distritos históricos se benefician de una forma única de diversidad social. Por encima de todo, los turistas desean explorar un barrio que es representativo de la cultura local, y no encontrar otro centro comercial internacional exclusivo al aire libre. Para mantener el barrio asentado en el aspecto cultural, es imprescindible la diversidad social, tanto en el aspecto de vivienda como en el comercial. Por otro lado, la planificación de distritos históricos está inevitablemente ligada a debates más amplios sobre la centralidad, la vivienda asequible y el “derecho a la ciudad” (Lefebvre 1996).
En Panamá, la experiencia del Casco Antiguo ha formado parte de una iniciativa más amplia en el centro de la ciudad encaminada a restablecer la dignidad a la política de vivienda asequible a través de la rehabilitación de edificios y barrios tradicionales. Representa una desviación de las políticas anteriores enfocadas a la urbanización periférica o la construcción de bloques de apartamentos monótonos y sin vida en zonas residuales. Por tanto, trasciende el planteamiento limitado sobre la vivienda y aborda asuntos relacionados con el empleo, la cultura y la ubicación.
Creemos que estas enseñanzas y experiencias tienen mucho que aportar sobre la forma que puede adoptar el desarrollo urbano inclusivo. Estas enseñanzas son interesantes porque no se ocupan de abstracciones, sino de las necesidades y deseos concretos de diferentes agentes vinculados a un espacio urbano. Asimismo, dependen de una acción premeditada y no de expectativas simplistas sobre el goteo de beneficios sociales o económicos. ¿Pueden contribuir a un debate más general sobre los paradigmas de desarrollo urbano en América Latina y en otros lugares?
Sobre el autor
Ariel Espino, AICP, es director ejecutivo de la Oficina del Casco Antiguo (OCA) de Ciudad de Panamá. Es licenciado en arquitectura por la Universidad Católica de Panamá y posee una maestría en ciencias en planificación de la Universidad de Arizona y un doctorado en antropología de Rice University. La OCA es un órgano gubernamental cuyo objetivo es la implementación del plan maestro Casco Antiguo.
Referencias
Espino, Ariel. 2007. The development of low-income housing in the central and historic neighborhoods of Panama City: New models for economic development and social integration? Documento de trabajo. Cambridge, MA: Lincoln Institute of Land Policy.
Lefebvre, Henri. 1996. Writings on Cities, traducido y editado por Eleonore Kofman y Elizabeth Lebas. Oxford: Blackwell.
Pérez, Salvador, Rosendo Pujol y Mario Polèse. 2003. ¿Son importantes los centros de las ciudades? En Desafíos de las ciudades mesoamericanas. Los casos de tres metrópolis, editado por Salvador Pérez y Rosendo Pujol. San José: FLACSO.
Rojas, Eduardo. 2004. Volver al centro. La recuperación de áreas urbanas centrales. Washington, DC: Banco Interamericano de Desarrollo.
Scarpaci, Joseph L. 2005. Plazas and barrios. Heritage tourism and globalization in the Latin American centro histórico. Tucson: The University of Arizona Press.
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The Lincoln Institute has been collaborating with the Loeb Fellowship Program at the Harvard University Graduate School of Design since 1998. The Loeb Fellowship was established in 1970 through the generosity of Harvard alumnus John L. Loeb. Each year ten mid-career design and planning professionals are invited to study independently and develop insights and connections to advance their work in revitalizing the built and natural environments. In May the 2005 class of fellows traveled to Brazil on a study trip to exchange information with professional counterparts in the cities of São Paulo and Rio de Janeiro. This article focuses on what we learned about programs to improve life in the favelas of those cities.
From the lush Amazon rainforest to the futuristic skyscrapers topped by helipads in São Paulo, Brazil is a study in contrasts. The country is rich in land, with a landmass slightly larger than that of the lower 48 U.S. states; it is the largest country in South America and the fifth largest in the world.
Currently 80 percent of Brazil’s 186 million residents live in urban areas. The City of São Paulo, with a population of 10 million, is the largest city in Brazil and one of the most densely populated; its metropolitan area encompasses 16 million people. The City of Rio de Janeiro is the country’s second largest city with 6 million inhabitants and a metropolitan population of 10 million.
The income distribution in Brazil is among the most unequal in the world. The top 10 percent of the population earns 50 percent of the national income, while 34 percent live below the poverty line. Although inflation-curbing efforts have helped to steady the economy over the last few years, the country is still saddled with considerable foreign debt. Faced with the challenges of extreme poverty, drug trafficking, crime, inequitable land distribution, and inadequate housing, the government has limited funds for social programs and often has used them inefficiently.
Life in the Favelas
It is estimated that 20 percent of Brazilians currently live in favelas, or informal, low-income housing settlements. Favelas were first built in Rio in the early twentieth century, when thousands of soldiers who had fought in a civil war received little government assistance and were forced to live in makeshift structures. They often settled in locations without public services where building was precarious, such as steep hillsides or swampy lowlands. These favelas grew and many others were built in similarly unsafe areas. Torrential rains in 1966, 1996, and 2001 resulted in fatal mudslides in many communities.
Favelas began to increase rapidly in both number and size during the 1970s, when rural workers flocked to the cities for better employment opportunities. In Rio many long-established favelas are located downtown, close to wealthy neighborhoods and tourist areas. By contrast, most of the favelas in São Paulo are on the periphery of the urban core, due to local geography, history, and other factors.
Alfredo Sirkis, director of planning management and a former city councilor in Rio, explained that the scale of these informal developments and violent crime are the two most pressing challenges to improving life in the favelas. Speaking about the prevalence of the drug dealers, he said, “They have weapons of war and become braver every day. Police can neutralize the situation, but as soon as gangs are eradicated, new ones are created. State police and the municipal guards patrol these neighborhoods, but the police force is riddled by corruption.”
Most of the homes in favelas are built by residents with scavenged materials and lack proper sewage and water systems. A study conducted by Brazil’s Institute of Applied Economic Research (IPEA) estimated that 28.5 percent of the urban population does not have access to public water, sewage, and garbage collection services (Franke 2005). Some large favelas house more than 60,000 people and have been built so densely that retrofitting them with roads and utility systems is extremely difficult.
Various attempts have been made to upgrade favelas over the years. In the 1960s, following the example of U.S. urban renewal programs, some favelas were razed, and families were relocated to large, often distant, housing complexes with infrastructure and services. As in the U.S., however, this method often failed, as communities were destroyed and residents were displaced from local jobs and had few options for commuting. Furthermore, the underlying social issues, such as lack of jobs, drug trafficking, and crime, were not addressed. In the 1970s and 1980s a period of benign neglect resulted in rapid expansion of favelas and deterioration of the quality of life. The award-winning movie City of God portrays the nearly hopeless life of favela youth in a large, 1960s-era housing project that had deteriorated and became wracked with crime by the 1980s.
More recent favela improvement projects reflect lessons learned from those past efforts. The Loeb Fellows visited two such projects that focus on improving conditions in the favela’s current location by upgrading the built infrastructure and creating social programs to address job training, daycare, education, and crime.
São Paulo: Diadema
Diadema was founded in 1959 to accommodate workers in the growing automotive industry, and is now a separate incorporated city within metropolitan São Paulo. A new influx of rural job seekers moved to the area in the 1980s, and by then approximately one-third of the population lived in favelas. Much of the city faced serious structural problems due to the haphazard nature of past growth, but the government responded to the infrastructure needs by building roads and providing lighting, water, and sewage systems. Some demolition and relocation programs were required, but it was recognized that a policy to integrate the favelas into the city would achieve greater success in the long run.
The economic crisis in the 1990s precipitated a new wave of unemployment and crime, however. Between 1995 and 1998, the population of Diadema grew 3.4 percent, but the number of homicides increased 49 percent, often averaging one murder per day. Mayor José de Filippi, Jr., now serving his third four-year term, began a 10-phase campaign to fight crime by gathering some hard data. His staff mapped serious crime locations and identified the times of heaviest activity. After determining that 60 percent of homicides occurred in or near bars between the hours of 11 p.m. and 6 a.m., the city passed a law in 2001 that forced all establishments selling alcohol to close during those hours. That was the beginning of the sharp decline in serious crimes.
Another target of the mayor’s efforts to reduce crime was the youth of Diadema, who have benefited from several creative programs. The Youth Apprentice Project targets vulnerable young people from identified high-risk and socially excluded areas where drug trafficking is present. This project offers educational opportunities, sports and cultural activities, work placement, and a monthly income to those who qualify. These measures are aimed at giving young people other choices for using their time than crime, as well as new employment and social networks.
To deter crime by reducing the number of guns in favelas, the city decided again to focus on young people. The Disarmament of Fire Arms Campaign offered children a comic book in exchange for each toy gun collected, and approximately 27,000 toy guns were taken off the streets within three years. In the second phase of the campaign, collecting guns from adults, many children continued their activism and pressured their parents and neighbors to turn in their weapons. The program was far more successful than expected, with 1,600 guns collected in the first six months.
In addition to the crime-fighting programs, the mayor sought to improve the physical and social environment of the favelas. Citizens received training and free materials, and were encouraged to make structural as well as cosmetic improvements to their homes. In many areas they formed community groups that were effective in making neighborhood improvements. The city responded with a program under which residents in favelas located on publicly owned land can obtain a “right of use” of the land for 99 years at no charge. Those who remain for at least five years may begin steps to become the legal “lessee” of the land, and subsequently they are permitted to sell the structure.
Our visit to Diadema included a trip to a favela neighborhood where citizens had improved their homes and developed employment training and opportunities beyond those that the government program could provide. We gathered at a community center, which was also a place of worship and housed a classroom, to hear residents speak of their desire to take their community “to the next level.” They participated in the city’s “It’s Beautiful” program, which was created in 1983 with joint funding from the municipality and the community group. After the basic infrastructure was in place, they wanted the appearance of their community to match the pride they felt for their efforts.
Loeb Fellow Mary Eysenbach observed: “I was surprised how closely a self-organized neighborhood resembled a government-regulated one in form and organization. Whatever the solution is for the favelas, they must retain and even promote the creativity and entrepreneurship of the residents.”
Rio de Janeiro: Providência Hill
The Municipality of Rio de Janeiro created the Favela-Bairro project in 1993, when approximately one-fifth of the population lived in favelas. In its first two phases, the project has begun to integrate 620,000 citizens in 168 informal communities into the rest of the city. These settlements include 143 established favelas and 25 newer, irregular subdivisions. At least one more phase is planned, with the intention of reaching nearly 2 million people. The project is funded primarily by the municipality and the Inter-American Development Bank (IDB 2003).
The main goals of the Favela-Bairro project are to make structural improvements in the homes; expand road access; and enhance and formalize urban infrastructure, including paved roads, water supply, and sanitary sewage. These physical improvements will integrate the favelas into the urban fabric with public spaces and other amenities. Social programs will provide assistance to children and adolescents (day-care centers, arts and sports facilities) and create opportunities for income generation (professional training and schooling for adults and youths).
One small but vital part of the project helps the favela residents obtain a street address, which enables them to receive mail and establish a client relationship with service providers. The project also provides “right of use” certificates to residents after their homes are connected to the sanitation and water systems, plotted on a map, and assigned an address. This land “lease” is usually for 100 years and allows the owner to transfer the buildings to an immediate family member; the land remains the property of the city. The hope is that, in addition to providing services, this program will provide the homeowner with security and a greater sense of ownership and responsibility.
We toured Providência Hill, one of the models of the Favela-Bairro project, with approximately 5,000 residents. As a grim sign that security remains a concern even in an improved neighborhood, we were escorted by armed officers. Our guide explained that the new staircase we climbed was an important part of the project, both for pedestrian access and as a means to carry water and sewer lines to the upper part of the favela. He also pointed out that education programs are offered to show residents how to use the new infrastructure and services, but it may take time for them to integrate these new systems into their way of life.
We were impressed by the creative ideas used to address day-to-day problems. For example, the limited number and accessibility of vehicular-sized roads make trash and garbage collection difficult. One solution has been an innovative exchange program: residents receive milk in exchange for a bag of trash, thus creating a healthier population, better trash collection, and a cleaner neighborhood.
We observed a heritage project that restored a historic chapel and imbedded a gold line in the cement to guide visitors on a walking tour past the highlights of the revitalization project. Our visit also included a presentation on the Favela-Bairro project at the new daycare center that will accommodate 220 children of the most needy families. As we witnessed throughout our visit in Brazil, both city staff and neighborhood leaders participated collaboratively in the presentations and discussions.
Fellow Robin Chase commented: “The whole Favela-Bairro concept of leveraging personal investments and realizing that housing close to downtown is better than a housing project in the middle of nowhere impressed me as practical and efficient. The quality of life is vastly improved with electricity, water, and plumbing. Fixing the security issues seems like a very difficult problem that needs to be solved throughout the country.”
Conclusion
We observed positive signs of change in the favelas we visited and were impressed by the dedication of citizens and officials to integrate these communities into the larger city, but many challenges remain, notably the need for substantial financial resources to implement further changes. An extensive study of favela residents in Rio confirms our experience: “While there have been notable improvements in consumption of collective urban services, household goods, and years of schooling over the past three decades, there is greater unemployment and inequality” (Perlman 2003). Crime, police corruption, and prejudice against those living in the favelas remain barriers to progress.
“At some level, local, national, and international leaders have realized that the relocation, marginalization, and segregation strategies of the past will not work,” noted James Stockard, curator of the Loeb Fellowship Program. “People have strong connections to the land where they have settled. Leveraging that commitment and energy is an important part of making these informal neighborhoods into healthier, safer, and more economically viable communities.”
Heather Boyer was a Loeb Fellow at the Harvard University Graduate School of Design in 2004–2005 and is now a freelance editor in New York City.
References
Franke, Renata. 2005. Twenty-eight percent of Brazil’s urban population have no public water or sewage. Brazzil Magazine, June 2. www.brazzilmag.com/content/view/2641/49/
Inter-American Development Bank (IDB). 2003. Favela-Bairro: Ten years integrating the city. Washington, DC: Inter-American Development Bank.
Perlman, Janice E. 2003. The chronic poor in Rio de Janeiro: What has changed in 30 years?” Unpublished paper presented at the Conference on Chronic Poverty, Manchester, England.
Loeb Fellows, 2004–2005
Heather Boyer, former editor, Island Press, Boulder, Colorado
Robin Chase, founder and CEO, Meadow Networks, Cambridge, Massachusetts; founder and former CEO, Zipcar, Cambridge, Massachusetts
Maurice Cox, professor of architecture, University of Virginia; former Mayor, Charlottesville, Virginia
Mary Eysenbach, former director, The City Parks Forum, a program of the American Planning Association, Chicago, Illinois
Klaus Mayer, partner, Mayer Sattler-Smith, a multidisciplinary design firm in Anchorage, Alaska
Cara McCarty, curator of decorative arts and design, St. Louis Art Museum
Mario Navarro, former housing policy director, Chilean Ministry of Housing and Urban Development, Santiago
Dan Pitera, director, Detroit Collaborative Design Center, University of Detroit Mercy School of Architecture
Carlos Romero, community organizer and community development advocate, San Francisco, California
Susan Zielinski, cofounder and director, Moving the Economy, Toronto
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In June the Lincoln Institute convened a roundtable of experts from around the country to examine how and why property ownership and title problems exacerbate abandonment. The group debated the merits of public policy intervention, identified policies with the greatest potential for success, and outlined anticipated complications and issues in remedying abandonment. This article reports on that discussion.
The prevalence of vacant and abandoned property in U.S. cities has reached crisis proportions despite efforts to foster reuse of these sites. A mix of macroeconomic and demographic trends, such as deindustrialization, population shifts from urban and rural to suburban communities, and the shrinking urban middle class, have precipitated the decline in real estate demand that can lead to property abandonment in certain neighborhoods.
These trends, along with other factors, have resulted in various abandonment “triggers” (Mallach 2004) depending on the property type: inadequate cash flow; multiple liens; liens that exceed market value; fraudulent transactions; predatory lending; and uncertainties regarding environmental, legal, and financial liability. These triggers often prolong abandonment or relegate a property to permanent disuse, particularly in markets characterized by widespread disinvestment. Many of these triggers also “cloud” the property title and interfere with a potential new owner’s efforts to acquire property title or obtain site control in order to make improvements or commence reuse activities.
Comparable data on vacancy and abandonment across cities are difficult to obtain and vary widely due to different definitions and gaps in data sources, particularly in commercial and industrial land uses. Estimates of the amount of abandoned housing stock range from 4 to 6 percent in “declining” cities to 10 percent or more in “seriously distressed” cities (Mallach 2002). The following city statistics from Census 2000 data and city records only suggest the scope of the problem.
The abandonment problem is even more profound and perhaps less susceptible to reversal in some smaller cities of less than 100,000 that have lost at least 25 percent of their population over the last few decades. The situation in Camden, New Jersey, East St. Louis, Missouri, and other cities with large-scale abandonment suggests a severely weakened market with multiple contributing socioeconomic factors. Where the number of abandoned properties indicates a systemic problem, there may be an inherent limitation on the ability to stimulate market activity.
This problem has ramifications for the quality of our public and private lives, because abandonment can lead to other detrimental social and fiscal impacts: depressed property values of surrounding properties (Temple University 2001); increased criminal activity; health and safety concerns due to environmental hazards; and additional disinvestment. All of these outgrowths of abandonment raise costs for the city, including site cleanup and demolition, provision of legal services, police and fire protection, and legal enforcement.
As urban vacancy and abandonment increase and suburban open space becomes less available or attractive for development, market pressures may improve redevelopment prospects, as in Boston, Chicago, and Atlanta. However, for several reasons we cannot just wait for this to happen everywhere.
First, the market does not always operate perfectly, in part because it is subject to existing laws and regulations (e.g., tax foreclosure statutes and clean title requirements) that impose high transaction costs to taking title and therefore affect market redevelopment. Some level of public policy innovation is needed, whether reform of existing laws or new laws and practices. Second, preserving open space is arguably a public benefit, but that also implies the need for public action to steer new development to previously developed properties. Finally, decisions about whether to spend public money, time, and effort are not made in a vacuum, but require an understanding of the problem, the available tools, and the resources and skills to implement them.
The magnitude of the problem suggests there are no easy answers. Multiple, interconnected market factors and differing state legal frameworks mean that the remedies to abandonment vary. In an effort to better define the public strategies for addressing the problem in different settings, this article sets forth the challenges of overcoming property acquisition barriers to abandonment, outlines a range of remedies, and explores potential next steps.
Neighborhood Redevelopment in New Jersey
Several years ago, Housing and Neighborhood Redevelopment Services, Inc. (HANDS), a nonprofit community development corporation (CDC) in Orange, New Jersey, tried to acquire an abandoned multifamily property. The property was burdened by tax liens that the city had sold to third-party purchasers, a strategy that cities use to raise revenue for other needs. The lien holders included out-of-state investment groups and speculators, and the current property owners did not have the financial ability or desire to redeem the liens. No entity was taking responsibility for property upkeep, so it sat idle and accumulated more tax liens, further elevating the stakes involved in clearing the title and heightening the financial, legal, and psychological barriers to acquisition. HANDS had a plan for neighborhood revitalization and a productive use for the property, but it lacked the funds for acquisition and the tools to clear the legal title.
Over the past few years, however, New Jersey reformed state programs to provide up-front subsidies for property acquisition, removal of liens, and other activities necessary for CDCs to establish site control (Meyer 2005). At the same time, a new state law, the Abandoned Properties Rehabilitation Act (2004), accelerated foreclosure action on vacant property by eliminating the waiting period between the time a potential new owner gives notice of its interest in foreclosing and lien acquisition. In cases where the owner will not rehabilitate a property, the new law allows the municipality to undertake rehabilitation or find a CDC to do so.
In this instance, HANDS took advantage of the new state law and financial incentives to acquire the multifamily property and convert it into housing for first-time homebuyers as part of the CDC’s larger neighborhood revitalization strategy. A few other organizations have begun to use these tools to acquire and redevelop single-family and multifamily homes around the state.
Ownership and Title Issues
Where abandonment or prolonged vacancy occurs due to owner inaction, two options exist for reuse. First, the property may be left abandoned indefinitely, or until the market changes. Alternatively, a new owner (e.g., the municipality, a CDC, or a private developer) may intervene, acquire the property, and carry out rehabilitation or reuse. It is this second alternative and the remedies for implementing it that concern us here. New methods for acquiring abandoned property will help to obtain property control from unwilling, unknown, or incapable owners.
However, the debate between these two alternatives raises significant issues that need further exploration. If the primary objective is to put the property back into productive use, one impetus for intervention is to eliminate the legal barriers to transferring the property to a new owner. Clear title is a critical issue. The multiple tax liens that encumber the title, and often cause the property’s abandonment in the first place, can cloud the title and prevent effective title transfer.
These title complications can be further compounded by the use of certain supposed remedies. For example, forcing title transfer involuntarily, from an unwilling owner or in abandonment cases where ownership is in doubt, can result in a cloudy title that may jeopardize obtaining title insurance—a mandatory precursor to procurement of conventional financing—and thereafter present title problems whenever the property changes hands. Clear title is part of the larger challenge for many states that do not have efficient, workable processes for moving title into the hands of responsible owners.
Remedies: Laws, Practices, and Tools
Municipalities seeking to reduce their stocks of vacant and abandoned property may be inspired by strategies and programs used in other localities, but they should carefully assess their own situations first. Differences in state laws may require a variety of approaches, such as reforming existing laws; improving local practices and implementation; and introducing innovative new tools. Some remedies to facilitate acquisition of vacant and abandoned properties for redevelopment seek to
Remedy choice depends on the property’s stage of abandonment, the current land use (e.g., multifamily rental, single-family house, commercial, or industrial), the property’s ownership status, and state statutes and regulations. A property at an early stage of abandonment due to general neglect and code violations, including conditions that adversely affect the health, safety, or well-being of building residents or neighbors, may be turned around with regular inspections and enforcement. These preventive remedies can slow disinvestment and prevent permanent abandonment by forcing a known owner to either renovate the property or transfer it to another entity willing to do so. Effective code enforcement varies widely because it is a function of local practice, but persistent municipal issuance of orders for code violations is critical.
Localities may also enforce state-authorized nuisance abatement laws to address these code violations by requiring an owner to make repairs or improvements, such as trash removal, structural repairs, and building demolition. If an owner refuses, then the municipality can enter the property to undertake these activities and seek to collect the costs from the owner. If that fails, the municipality may place liens on the abandoned property equal to the costs of these actions, enforcing them through foreclosure actions, or in many states by attaching the owner’s assets. The effectiveness of nuisance abatement laws varies across states, depending on the definition of “nuisance,” the prescribed statutory penalties, and how the local authority chooses to carry out nuisance actions (Mallach 2004).
Significant disinvestment generally occurs where property owners fail to undertake property management responsibilities that cause significant disrepair; stop paying back taxes, utilities, or other public services; and/or allow the property to remain vacant for more than a designated period, usually six to twelve months. Some of these complicated cases require innovative, sometimes controversial remedies.
Under Baltimore’s vacant property receivership ordinance, for example, the city or its CDC-designee may petition a court to appoint a receiver for any property with a vacant building violation notice, though it is generally used in the case of severely deteriorated single-family houses. The receiver may collect rents (if the property is still occupied), make repairs, and attach a super-priority lien on the property equal to the expense; or immediately sell the property to a private or nonprofit developer who will conduct the rehabilitation. Advocates argue that the receivership approach is beneficial because it focuses on fixing the property (bringing an action in rem, literally against the “thing”) rather than on punishing the owner (known as an in personam action, or against the person) (Kelly 2004).
In Cuyahoga County (where Cleveland is located), CDCs have used nuisance abatement as a form of receivership. In these cases, the CDC brings such an action in a special housing court to abate a nuisance and have a receiver appointed, and then the CDC collects the incurred improvement costs from the owner or conveys the property to a new owner.
In both Baltimore and Cleveland, the concept is used effectively against speculating investors who buy inexpensive, dilapidated properties and do nothing but pay taxes, hoping that the revitalization work of others in the community will increase their property values. These “free riders” frustrate efforts to identify them as targets in a legal action by creating sham ownership entities or providing the vacant house as the owner’s only mailing address (Kelly 2004).
Nuisance abatement or receivership actions ultimately may not provide secure title for the subject properties, or may cause properties to be more susceptible to unclear title outcomes. Receivership can create an encumbrance on the title that is difficult to extinguish, thus clouding the title and providing an excuse for banks not to lend on the property. The current title system, as adhered to by title companies and financial institutions, works relatively well for tracking and recording straightforward, linear property transactions, but is not set up to handle properties with multiple liens or encumbrances arising from checkerboard-type transactions that are characteristic of vacant and abandoned properties. Nevertheless, these actions constitute an underutilized and powerful tool, when used in the right legal and market circumstances.
Tax foreclosure is the most commonly used property acquisition tool for local government. It involves the taking of title to properties where owners have failed to pay their property taxes or other obligations to a government entity (e.g., a municipality, school district, or county). Third parties, such as CDCs or private developers, can also use tax foreclosure proceedings, as governed by state law, to acquire properties. The tax foreclosure process is based on the principle that a tax lien has priority over private liens, such as mortgages, so when the buyer forecloses on the tax lien, any private liens are extinguished and the property is acquired “free and clear” (Mallach 2004).
The common problems associated with this otherwise powerful tool arise from the lengthy time periods imposed by state statutes on different stages in the foreclosure process (e.g., the time in which the owner has a right to redeem his or her rights to the property); the length of time that taxes must be delinquent before a sale can occur; and whether the state first requires sale of the liens or sale of the property outright. Constitutionality standards also require strict notice requirements to all parties holding a legal interest in the property. Although rewriting state statutes to reduce or eliminate these time requirements may be a politically protracted process, state law reform can occur. For example, the law passed last year in New Jersey substantially reduced the notice periods, and Michigan’s tax foreclosure reform offers faster judicial proceedings to increase the timeliness of property transfer (Mallach 2004).
An increasingly popular tool is the local land bank, a governmental entity that acquires, holds, and manages vacant, abandoned, and tax-delinquent property. The properties are acquired primarily through tax foreclosure, and then the land bank develops or, more likely, holds and manages the properties until a new use or owner is identified. Land banks can provide marketable title to properties previously encumbered with liens and complicated ownership histories. They also provide localities with a way to create an inventory and monitor properties, and assemble properties into larger tracts to improve opportunities for targeted economic development.
Each city’s land bank is organized and operates differently. Some operate within city agencies, while others exist as legally separate corporations (Alexander 2005). The Genesee County, Michigan land bank has pioneered a way to self-finance redevelopment by using the financial returns on the sale of one property to support the costs of holding other properties, an approach that ultimately reduces municipal costs (Kildee 2004).
Exercise of eminent domain powers pursuant to the Fifth Amendment of the U.S. Constitution is another remedy that transfers real property titles to the government for public use. Targeting blighted properties remains an agreed upon use of eminent domain, although state statutes differ on how it is carried out. Cities are certain to be more wary of using this tool in the wake of the controversial U.S. Supreme Court decision, Susette Kelo et al. v. City of New London, Connecticut, et al. (Kelo), which sanctioned New London’s condemnation of nonblighted private property for economic development purposes. The Kelo ruling has caused state legislatures around the country to consider reevaluating the meaning of public use and limiting the circumstances under which government entities can utilize this powerful remedy.
Without overall market improvements, it is unlikely that these remedies alone can give cities, neighbors, courts, or community nonprofit organizations the tools needed to address the vacant and abandoned property problem. However, anecdotal experience and discussions at the Lincoln Institute roundtable indicate that these tools have been used successfully on a case-by-case basis; whether they affect change on a neighborhood- or city-wide basis and over a period of years is still unclear. Success may depend, in part, on market strength and conditions, but also on localities’ vigilance (for instance, with code enforcement), willingness to take risks and use new tools, and institutional capacity.
Local Impacts of Remedy Implementation
Even where one or more of these tools is legal, available, and effective in eventually converting vacant and abandoned property to productive uses, there are three types of hurdles that may prevent valuable projects from being pursued: local administrative and procedural barriers; unintended and potentially negative consequences; and ancillary local strategies that can enhance or decrease their effectiveness.
Local barriers include costs to cities of administering, managing, and implementing these conversion activities; political opposition, inaction or apathy; and lack of local knowledge or capacity. The up-front costs to cities or nonprofit entities of taking ownership to dilapidated properties and making improvements are not trivial. Also, some tools may require investment in training, innovation, and minor risk-taking by local governments. Studies and experience are beginning to reveal that, for similar reasons, localities are not taking advantage of tools already provided for in some state statutes. One researcher found that local governments in Massachusetts were not utilizing existing mechanisms to address tax delinquent properties (Regan 2000). New Jersey is reportedly experiencing a similar phenomenon, where local entities are underutilizing tools available since adoption of new abandoned property laws and funding programs.
The possibility of unintended consequences fostered by intervention in the market should not be an argument for no intervention, but it is a reminder that any remedy needs to fit market conditions and be used with appropriate reuse restrictions or incentives to avoid new problems. One downside to successful neighborhood revitalization is gentrification, which is the displacement of lower-income residents by new, wealthier residents who can afford the higher prices placed on renovated properties. For instance, in Atlanta and Boston neighborhoods with relatively strong metropolitan-wide real estate markets, carrots and sticks must be used selectively to promote the transfer of abandoned property in some areas. One way to minimize the extent of gentrification is to require that any residential reuse maintain an income mix by preserving a percentage of units as long-term affordable housing. Another model is the nonprofit community land trust (CLT), which generally owns the land and provides affordable housing in perpetuity by leasing it to the building owners (Greenstein and Sungu-Eryilmaz 2005).
Local neighborhood revitalization strategies combined with other appropriate remedies can improve the chances of success as cities and CDCs work to address their redevelopment challenges. These strategies may include documenting and inventorying abandoned properties; targeting pivotal properties in neighborhoods selected for redevelopment; increasing home ownership; forging partnerships with business groups, city hall, hospitals, universities, and other nonprofits; and identifying and reforming significant policies and regulations on tax liens.
Communities must also continue to be innovative and to adapt available tools and remedies to address ever-changing local abandonment triggers. One such challenge is the recent phenomenon of lien securitization, which occurs when one entity buys up multiple liens on multiple properties and bundles or securitizes them for resale. This puts the liens into the hands of investors who presumably have no interest in the local economy or the property’s productive reuse, and can prevent title transfer, especially in weak secondary markets.
Next Steps in Meeting the Abandonment Challenge
Property title and acquisition obstacles are not the only barriers to fostering productive reuse of abandoned property, and removing these obstacles may not overcome the abandonment cycle. However, use of the remedies outlined here is an essential first step, and several next steps could significantly enhance their implementation. First, a pressing need exists to clarify the meaning of “clear title,” possibly by updating title insurance company standards to reflect new practices.
Second, case studies of successful and failed tools and mechanisms in weak and strong urban markets could provide valuable lessons. Possible criteria to evaluate a remedy’s success or failure include the frequency and extent of their use; their applicability to all property uses (residential, commercial, industrial); their effectiveness in fully clearing the title; unexpected consequences; and, if possible, the property’s ultimate reuse and its sustainability.
Third, a study of states where statutory reform has occurred, such as Michigan or New Jersey, would offer an analysis of how such reform has impacted property transfer and reuse. Finally, since local entities play a key role in tool implementation, improving local capacity through education about these tools and their importance in revitalizing urban areas would be another crucial next step in ultimately reducing the numbers of vacant and abandoned properties.
Lavea Brachman, a visiting fellow at the Lincoln Institute of Land Policy in 2004–2005, continues to research public policy remedies and the roles of local nonprofits and government entities in fostering brownfield and abandoned property reuse. She also directs the Delta Institute’s Ohio office, a nonprofit working on sustainable development solutions to environmental quality and community and economic development challenges.
References
Alexander, Frank. 2005. Land bank authorities: A guide for the creation and operation of local land banks. New York, NY: Local Initiatives Support Corporation.
Black, Karen. 2003. Reclaiming abandoned Pennsylvania. Philadelphia, PA: Pennsylvania Low Income Housing Coalition Report, March.
Greenstein, Rosalind, and Yesim Sungu-Eryilmaz. 2005. Community land trusts: Leasing land for affordable housing. Land Lines 17(2): 8–10.
Kelly, Jr., James J. 2004. Refreshing the heart of the city: Vacant building receivership as a tool for neighborhood revitalization and community empowerment. 13-WTR J. Affordable Housing & Community Dev. Law 210.
Kildee, Dan. 2004. The Genesee County land bank initiative. Flint, MI: Genesee County Land Bank.
Mallach, Alan. 2002. Abandoned properties, redevelopment and the future of America’s shrinking cities. Working paper. Montclair, NJ: National Housing Institute.
———. 2004. Addressing the problem of urban property abandonment: A guide for policy makers and practitioners. Montclair, NJ: National Housing Institute, April.
Meyer, Wayne T. 2005. High-impact development for long-term sustainable neighborhood change: Acquiring, rehabilitating, and selling problem properties. Orange, NJ: HANDS, Inc.
National Vacant Properties Campaign. 2005. www.vacantproperties.org.
Regan, Charleen. 2000. Back on the roll in Massachusetts: A report on strategies to return tax title properties to productive use. Boston: Citizens’ Housing and Planning Association (CHAPA).
Temple University Center for Public Policy and Eastern Pennsylvania Organizing Project. 2001. Blight-free Philadelphia: A public-private strategy to create and enhance neighborhood value. Philadelphia, PA, October.
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A major argument in support of land-value taxation is that it creates no incentives for altering behavior in order to avoid the tax. By contrast, a conventional property tax, levied on buildings, can deter landowners from erecting otherwise desirable structures on their land. For example, homeowners may decide against finishing a basement or adding a second bath because it would increase tax liability. Thus, a conventional property tax can lead to excessively low capital-land ratios and “excess burden”—a cost to taxpayers over and above the actual monetary payments they make to the tax authorities. This article reports on a recent study of excess burden resulting from an early British antecedent of the modern property tax—the 17th-century window tax.
The Case of the Window Tax
In 1696, King William III of England, in dire need of additional revenues, introduced a dwelling unit tax determined by the number of windows in an abode. The tax was designed as a property tax, as described by this discussion in the House of Commons in 1850: “The window tax, when first laid on, was not intended as a window tax, but as a property tax, as a house was considered a safe criterion of the value of a man’s property, and the windows were only assumed as the index of the value of houses” (HCD 9 April 1850).
In its initial form, the tax consisted of a flat rate of 2 shillings upon each house and an additional charge of 4 shillings on houses with between 10 and 20 windows, or 8 shillings on houses with more than 20 windows. The rate structure was amended over the life of the tax; in some cases, rates were raised dramatically. In response, owners of dwellings attempted to reduce their tax bills by boarding up windows or by constructing houses with very few of them. In some dwellings, entire floors were windowless, leading to very serious and adverse health effects. In one instance, lack of ventilation led to the death of 52 people in the surrounding town, as reported by a local physician who called on a house inhabited by poor families:
“In order to reduce the window tax, every window that even poverty could dispense with was built up, and all sources of ventilation were thus removed. The smell in the house was overpowering and offensive to an unbearable extent. There is no evidence that the fever was imported into this house, but it was propagated from it to other parts of town, and 52 of the inhabitants were killed.” (Guthrie 1867)
The people protested and filed numerous petitions to Parliament. But, despite its pernicious effects, the tax lasted more than 150 years before it was finally repealed in 1851.
The window tax represented a substantial sum for most families. In London, it ranged from about 30 percent of rents on “smaller houses on Baker Street” to as much as 40 to 50 percent on other streets, according to a House of Commons debate in 1850 (HCD 9 April 1850). The tax was particularly burdensome on poor families living in tenements, where assessors taxed the residents collectively. Thus, if a building contained 2 apartments, each with 6 windows, the building was taxed at a rate based on 12 windows. By contrast, on very large houses of the wealthy, the tax typically did not exceed 5 percent of the rental value.
The tax schedule underwent several significant changes before it was finally repealed. In 1784, Prime Minister William Pitt raised tax rates to compensate for lower taxes on tea. Then in 1797, Pitt’s Triple Assessment Act tripled the rates to help pay for the Napoleonic Wars. The day following this new act, citizens blocked up thousands of windows and wrote in chalk on the covered spaces, “Lighten our darkness we beseech thee, O Pitt!” (HCD 24 Feb. 1848).
England and Scotland were both subject to the window tax, but Ireland was exempted because of its impoverished state. One member of Parliament quipped, “In advocating the extension of the window tax to Ireland, the Honorable Gentleman seemed to forget that an English window and an Irish window were very different things. In England, the window was intended to let the light in; but in Ireland the use of a window was to let the smoke out” (HCD 5 May 1819).
The window tax, incidentally, was viewed as an improvement over its antecedent, the hearth tax. In 1662, Charles II (following the Restoration) imposed a tax of 2 shillings on every fire hearth and stove in England and Wales. The tax generated great resentment largely because of the intrusive character of the assessment process. The “chimney-men,” as the assessors and tax collectors were called, had to enter the house in order to count the number of hearths and stoves. The window tax, by contrast, did not require access to the interior of a dwelling; the “window peepers” could count the apertures from the outside and avoid invading the privacy of the home.
The window tax, however, created some administrative problems of its own—most notably the definition of a window for purposes of taxation. The law was vague, and it was often unclear what constituted a window for tax purposes. In 1848, for example, Professor Scholefield of Cambridge paid tax on a hole in the wall of his coal cellar (HCD 24 Feb. 1848). In the same year, Mr. Gregory Gragoe of Westminster paid tax for a trapdoor to his cellar (HCD 24 Feb. 1848). As late as 1850, taxpayers urged the Chancellor of the Exchequer to clarify the definition of a window.
Notches and Their Effects on Behavior
Throughout its history, the window tax consisted of a set of “notches.” A notch in a tax schedule exists if a small change in behavior—such as the addition of a window—leads to a large change in tax liability.
Notches are rare (Slemrod 2010) and not to be confused with kinks, which are far more common even today. A kink in a tax schedule exists if a small change in behavior leads to a large change in the marginal tax rate but just a small change in tax liability. The income tax in the United States, for example, has several kinks. Married couples with taxable income from $17,850 to $72,500 are in the 15 percent marginal tax bracket; couples with taxable income from $72,500 to $146,400 are in the 25 percent marginal tax bracket. If a couple with income of $72,500 were to earn an extra dollar, its marginal tax rate would jump to 25 percent, but its tax liability would increase by just $.25.
Microfilm records of local tax data in the U.K. from 1747 to 1830 allow for a more systematic examination of the impact of the window tax and notches. This article draws on a data set from 1747 to 1757, with information on 493 dwellings from Ludlow, a market town in Shropshire, near the border of Wales. Over this period, the window tax schedule included 3 notches. A homeowner in this period paid:
Homeowners who purchased a 10th window thus paid a 6 pence tax on the 10th window as well as on each of their 9 other windows, which previously had been untaxed. Thus the total tax on the 10th window was 60 pence, which was equal to 5 shillings. If the window tax distorted decisions and thus led to excess burden, then one would expect to find many homes with 9, 14, or 19 windows but very few with 10, 15, or 20. A test of this argument is discussed below.
Through the first half of the 18th century, the administration of the tax had been troublesome, as homeowners frequently camouflaged or boarded up windows until the tax collector was gone, or took advantage of loopholes or ambiguities in the tax code. As a result, tax collections were much lower than expected. In 1747, however, Parliament revised the tax by raising rates and introducing measures to improve its administration. Most notably, it prohibited the practice of blocking up and subsequently reopening windows in order to evade assessment; violators had to pay a penalty of 20 shillings (1 pound) for every window they reopened without notifying the tax surveyor (Glantz 2008).
The 1747 act reduced tax evasion significantly, so the data for the following 10 years should provide reasonable estimates of the actual number of windows. If the window tax distorted behavior, one would expect to find spikes in the number of dwellings at the notches, with 9, 14, or 19 windows. And this is precisely what the data demonstrate. Figure 1 is a histogram showing the number of windows for homes in the sample. The pattern is clear; there are sharp increases in the number of homes with 9, 14, or 20 windows:
Standard statistical tests reject the hypothesis that there are equal numbers of houses with 8, 9, or 10 windows; with 13, 14, or 15 windows; or with 18, 19, or 20 windows. It is manifestly clear that people responded to the window tax by locating at one of the notches so as to minimize their tax liability.
Data on a sample of 170 houses for the period 1761 to 1765 shed light on the response to Parliamentary revisions to the tax in 1761. In addition to rate increases, the 1761 revisions expanded coverage of the tax to include houses with 8 or 9 windows. Under the earlier rate structures, houses with fewer than 10 windows paid no window tax. For this second sample, figure 2 shows a large spike at 7 windows: 28.2 percent of the houses have 7 windows, but only 5.2 percent have 6 windows, and just 2.9 percent have 8 windows. Once again, it’s easy to reject the hypothesis that there were an equal number of houses with 6, 7, or 8 windows.
In summary, the evidence from our two samples makes it quite clear that there was a widespread tendency to alter behavior in order to reduce tax payments. People chose the number of windows not to satisfy their own preferences, but to avoid paying higher levels of taxes. The window tax, in short, generated a real “excess burden.”
How Large Was the Excess Burden from the Window Tax?
As discussed, the window tax was substantial and induced widespread tax-avoiding behavior. Based on some standard techniques of economic analysis, our simulation model generates an estimate of what people would have been willing to pay for their preferred number of windows. The model captures each consumer’s demand for windows with and without the tax, the taxes paid, and the loss of welfare from adjusting the number of windows in response to the tax.
In the sample from 1747 to 1757, the estimated welfare losses were very large for households at one of the notches. For them, the welfare loss (i.e., excess burden) is 62 percent of the taxes they paid. That is to say, for every dollar collected under our simulated version of the window tax, the tax imposed an additional burden or cost of 62 cents on these households. The excess burden, not surprisingly, is particularly large for households that chose 9 windows. One criterion economists use to evaluate a tax is excess burden relative to taxes paid. By this standard, a good tax is one that collects significant revenue buts leads to very small changes in decisions. Consumers who purchased 9 windows are thus the worst possible case. Those consumers paid no tax; so, for them, the entire burden of the tax is excess burden.
For our entire sample of 1,000 simulated households, the excess burden as a fraction of taxes paid is about 14 percent. Thus for each tax dollar raised by the window tax, our simulation suggests an additional cost of 14 cents to taxpayers as a result of their distorted choices.
Some Concluding Remarks
The window tax represents a very clear, transparent case of excess burden—a tax that placed heavy costs on taxpayers in addition to their tax liabilities resulting from tax-avoiding adjustments in behavior. But, as mentioned early on, modern property taxes also create an excess burden, although the consequences are less dramatic than in the case of the window tax.
In designing a tax system, it is important to consider this issue. The ideal, in principle, is a neutral tax that raises the desired revenues but doesn’t distort taxpayer behavior so as to create additional burdens. Such a tax is a pure land-value tax levied on the site value of the land—that is, its value with no improvements. Thus, the assessed value of the land (and hence the tax liability of the owner) is completely independent of any decisions made by the owner of the land parcel. Unlike the window tax, which provides a compelling example of the additional costs that arise when property tax liabilities depend on the behavior of the property owner, a land-value tax creates no incentives for tax-avoiding behavior.
About the Authors
Wallace E. Oates is Distinguished University Professor of Economics, Emeritus, University of Maryland, and University Fellow at Resources for the Future.
Robert M. Schwab is a professor of economics at the University of Maryland.
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