Improving the Accuracy of Downtown Land Assessments

A tax that is levied on the value of land alone, irrespective of any improvements to land, does not cause any economic distortions. Levying such a tax requires an ability to estimate the value of land separately from improvements, which may be particularly difficult for downtown parcels, because almost all parcels are already improved, so there will be few sales of near-by vacant lots that would permit inferences about the value of land in the area. This paper provides an initial effort to assess the value of commercial land in downtown Portland, Oregon, by using a combination of a hedonic model of the value of improvements and a quadratic spatial smoothing technique for the value of land. Compared to the official assessments of Portland assessors, our assessments of all property values are only slightly less accurate, while our assessments of the value of vacant parcels are more accurate.