Q. What happens when a city taxes buildings more at the beginning of the greatest building boom in American history?
A. Not much.
One of the best examples of the efficacy of land value tax (LVT) was careful study of the city of Pittsburgh culminating in the Oates/Schwab study of Pittsburgh published in 1997 which concluded all things being equal land value tax policy had the effect of unleashing construction demand – especially downtown construction –just as the steel industry collapsed, and just as the US entered a significant recessionary period (late 1970s and early 1980s)
After a botched revaluation by Allegheny County in Pittsburgh in the year 2000, the sprawl/development community/suburban power centers based outside the cities created enough havoc with the data, all in the midst of a savage mayoral primary. Then-city leaders made a reactive choice and "suspended" LVT.
What were the results? Certainly, as the nation entered a period of tremendous growth especially in the construction industry, Pittsburgh's taxable building permits dropped. What development there was, came as the result of heavy lifting by the taxpayers as the "development community" were showered with abatements, subsidies and TIFs, which continues unabated to this day (Pun intended).
New construction is generally limited to condos and other high ticket items. Older neighborhoods such as the Hill District, the North Side, Carrick and Beltzhoover, the meat and bones(if you will) of Pittsburgh were slammed with significantly higher tax levies. More and more land has gone off the tax rolls.
A TIF-driven dream: A Developer pays himself to build at 350 5th
All bad news no doubt. But another issue that has been a constant is the fact that just when LVT was ended, property tax revenues stagnated (again during a huge boom in construction throughout the nation). Property tax revenues are still far short of what the city expects and needs.
While a healthy property tax base can pay for most if not all of the city's revenues, Pittsburgh wants permission to scrounge in the sofa for loose change, and is wishing for the very type of taxes that are regressive and damaging long-term to an economy: local wage and consumption taxes. In fact, LVT was the replacement for a wage tax, twice enacted by the late and very lamented Mayor Sophie Masloff.
Despite all the infectious happy talk about Pittsburgh's rebirth, demographic and economic indicators all point downwards.
Perhaps it's time Pittsburgh returns to the future and double down by stripping away inefficient taxes and grants of unfair privilege to the well-connected in exchange for sweat equity and real construction projects. Return the city to the land value tax, and include the school district tax as well. Announce that the new protected class in Pittsburgh will be those who want to work, build, and produce a better community.