Implementing a Land Value Tax in Urban Residential Communities

This paper describes the results of a research project conducted under a John C. Lincoln Fellowship for the Lincoln Institute of Land Policy (Cambridge, Massachusetts, USA) on the potential for modern mass appraisal methods to separate values for residential properties between land and buildings. The Lincoln Institute has had a long-standing interest in land use and policy, including a land value tax. The research project involved an empirical determination of the feasibility of using multiple regression analysis (as well as the adaptive estimation procedure or “feedback”) to decompose estimated residential property values between land and improvements.

Both vacant and improved residential sales data were obtained from three North American communities. As a benchmark, a traditional additive model was developed for each community using the improved sales only. Using both vacant and improved sales, a nonlinear model separable into land and building components was then developed. A comparison of results revealed that a combined model built from both vacant and improved sales need not sacrifice predictive accuracy for improved properties.

Analysis of land and building values from the nonlinear models suggests that land may constitute a higher percentage of total value for residential properties than commonly believed, in part because of a potential premium in value for improved over vacant sites. Tax shift analyses indicate that implementation of a land value tax would be less advantageous to lower-value than higher-value residential properties.