Detroit Aims to Spur New Housing, Boost Property Values With Tax Change
Detroit city officials are weighing a radical change to the way the city taxes property, which proponents say will help revitalise the city and become a model for the Rust Belt.
Detroit would be the largest U.S. city to introduce a so-called land-value tax. Like most U.S. cities, Detroit calculates property taxes by estimating the value of a property’s land and buildings and charging a fixed percentage each year.
Under the proposed change, the city would replace some property levies with a single tax on the land value only, according to people familiar with the matter. That means owners of vacant land would see their tax bills skyrocket, while the tax bill for many homeowners and commercial-property owners would fall. That in turn would push up home values and encourage more property owners to build, said Roderick Hardamon, a local real-estate developer who supports the change.
Black homeowners have been hit particularly hard by declining values in recent decades, and proponents say the change could help shrink the region’s racial wealth gap.
The tax change has a couple of legislative hurdles to clear. First, it would need state approval. Then it would need to win a majority of Detroit voters through a ballot measure. Detroit Mayor Mike Duggan has said the city is “80% of the way to a solution” on a new tax system, a spokeswoman said.
The speaker of Michigan’s house of representatives, Joe Tate, supports the new tax policy, which is also backed by a number of advocacy groups, economists and property developers.
“Reducing the tax burden creates stronger communities, not only in Detroit but across the state,” Mr. Tate said.
Other mayors and housing advocates see Detroit as a crucial test case for this tax policy, one that could open the door for other cities to follow.
“I think this is a policy that works in any city in Michigan and works in a lot of distressed cities in a similar way,” said Nick Allen, a Ph.D. student at the Massachusetts Institute of Technology and former manager at the Detroit Economic Growth Corporation, who has been pushing for the tax change.
Detroit has many vacant lots and a lack of development. Investors, many from out of state, bought up land and kept it vacant, waiting for prices to rise, according to developers and community activists.
A declining population pushed down home values and property-tax income in recent decades, leading the city to raise tax rates to make up the shortfall, causing more people to leave and pushing home values lower.
In a study published last year, Mr. Allen and John Anderson, a professor of economics at the University of Nebraska-Lincoln, estimated that more than 96% of Detroit homes and small rental buildings would see their property-tax bills fall as a result of the proposed change. That, along with an expected increase in development, could help push up residential-property values, they said.
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