In the absence of land value taxation, hundreds of frustrated Toronto landowners and merchants have taken matters into their own hands, voluntarily taxing themselves to finance a redesign of their local street.
Six hundred and fifty eight businesses in the Bloor and Yonge shopping district agreed to levy themselves $20 million to finance sidewalk widening, adding benches and granite planters, and planting trees along the street. Toronto Star columnist Christopher Hume calls the street remake “an enormous success, a model for the rest of Toronto”.
But don’t assume that these particular Toronto business owners were simply overflowing with civic pride. These merchants knew what all merchants know; improved street design boosts business. More people will visit the area, stay longer, enjoy their experience more, invite friends, and return repeatedly.
Clearly, these businesses were able afford the $20 million voluntary levy without fear of bankruptcy. No one forced their hands. The anticipated increased economic activity was no doubt more than adequate to finance the levy, the ROI no doubt healthy. The already attractive locations would become even more desirable. Commercial leases and residential rents would rise, but the increased commercial activity would more than compensate. Landowners would benefit from the rise in land values.
This win-win situation is a model for Toronto and, indeed, every other city, town and village. But why should citizens and businesses be driven to self-finance local improvements when municipalities could employ land value taxation to do the job? Businesses want cities to use LVT, they know it works.
Unlike the present municipal tax—which is applied to both land value and building value—LVT is a levy on land value alone, leaving buildings (improvements) untaxed, so as not to punish landowners from improving or expanding the building stock. By levying land value alone municipalities would collect a portion of the unearned, “community-generated” income that accrues annually to land (about 5% of land value depending on the stage in the 18-year real estate cycle), sufficient to finance city programs and infrastructure construction and maintenance.
Collecting a percentage of land value, regardless of how land is being used, encourages land owners to put land to its best use or sell it to someone who will, reducing suburban sprawl and derelict downtown properties. Collecting this “unearned” economic rent for public purposes deflates land speculation, the cause of destructive and disruptive real estate bubbles. Indeed, not collecting the economic rent of land damages the economy by rewarding land speculators rather than productive enterprises.
Furthermore, infrastructure construction, when based on LVT, becomes a self-regulating system, immune to political interference and pork-barrel politics. Warranted infrastructure will pay for itself while non-warranted infrastructure will not, so political whimsy or self-serving schemes to build white elephants are exposed.
Adopting LVT can be smoothly accomplished by shifting municipal fees, over 5 to 10 years, off buildings and onto the land beneath the buildings. The ensuing multiple benefits will include a re-invigorated economy, more jobs, new infrastructure, improved urban design, low-energy walkable neighbourhoods, improved building stock, sufficient affordable housing, less sprawl and strip development, more land left to nature.