Tuesday, October 9, 2012

A system of Property Taxes that don't create value

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A non-place that reduces the value to the area around it. Why is this allowed?
There is a warped sense about how property taxes are assessed. Take the familiar Mound property above. It's an old commercial building on Commerce Blvd across the street from Our Lady of the Lake.

We would judge judge this property one of the worse in Mound downtown properties. It clearly hasn't been used in a long time, the owners don't seem to bother maintaining it. We've remarked before that it seems like the owners are just sitting on it until someone like Walgreens gives them money to walk away from it.

The owners of this property don't live in Mound. The only time they worry about it is when their property taxes are due. Fortunately, as the building deteriorates, their property taxes go down too. If they tried fixing it up, then their property taxes would go up as well, and that of course is the last thing they would want.

Essentially, we have a system that penalizes property owners for improving their property.
This happens because we tax buildings much more heavily than the land under them. These buildings are visited by an official assessor who determines their value. The higher the buildings value, the higher the tax. Under this system, a rational person has every reason to put up crappy buildings that will not be highly assessed, or he has every reason to let his property run down, or build nothing at all. This is a major reason for the current desolation of American towns and cities.
A Place in Mound asks, is it rational to continue a system that rewards property owners for letting this happen? Or is there another way that encourages more productive land use, and produce a higher for all involved.

5 comments:

  1. Also why a lot of American cities have huge parking lots in their downtown cores. The land value itself is really high, but as long as there aren't any buildings on the land the owners skate by paying hardly any property tax. The owners sit on the land waiting to be bought out. Meanwhile the city can't afford police, fire, schools, etc.

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