Detroit is currently contending with a surplus of vacant lots and a lack of new development. In recent decades, a shrinking population has lowered property values and tax revenue, forcing the city to hike taxes to make up the difference, which has in turn driven higher eviction rates and decreased housing values. Meanwhile, developers and neighborhood activists claim that investors, many of whom were from outside the state, purchased land and kept it unoccupied while they waited for prices to increase.
Currently, Detroit calculates property taxes similarly to the majority of American cities by calculating the worth of a property’s land and structures and charging a certain percentage each year. But officials in Detroit are considering a major reform to the city’s property tax system to replace some property levies with a single tax based only on the land value.
Under this proposal, currently regarded as a land-value tax, the tax burden on many homes and owners of active commercial property would decrease while the tax burden on owners of vacant land would skyrocket. As a result, property values would rise and more people would decide to build.
There are a few legislative challenges that the tax adjustment must overcome. It would first require state clearance. The next step would be to pass a ballot proposal with the support of the majority of Detroit voters. But as the largest American city trying this out, it’s a major test case for this tax strategy. If the land-value tax turns out to be economically beneficial for Detroit, other cities may decide to adopt a similar tax structure.