Johnson County needs start taxing land instead of housing.
One issue inflicting the housing market in Johnson County is how the local government taxes property instead of the land on which property is built.
The current tax scheme — the traditional property tax — incentivizes landowners not to develop their land and instead build large, single-family homes. While single-family homes are certainly a desired part of any community, this tax code leaves groups who cannot afford these homes, such as students and vulnerable populations, at a disadvantage in finding housing.
It is in the best interest of Johnson County to implement a land-value tax and forgo the current property tax scheme to make housing more affordable for vulnerable populations.
The idea of a land value tax originated in the late 19th century when economist Henry George proposed the government adopt a policy of taxing one single commodity. that of land values, or how much a piece of land is worth.
Land value tax differs from a traditional property tax as it does not apply to actual property on the land.
George contended that revenues collected from this tax would be redistributed from landowners to those in need of assistance in the form of lower rents.
Economists have championed land value taxes because of the fact that land is essentially an inelastic commodity, and therefore, when a governing body taxes land, they are not creating any deadweight loss (reduction of efficiency due to market distortions) in an economy.
In other words, because land is a fixed commodity landowners will have to pay whatever tax the county government administers as a result. The landowners are therefore incentivized to develop their land and improve upon their properties thus keeping markets efficient and preventing deadweight loss.
For example, if a landlord has to pay a land value tax for the apartment building they own, they cannot pass the tax directly on to their tenants because their tenants would move to a different apartment where the land is cheaper. As a result, they must add more rental units to the building in order to offset the burden of the tax.
This increase in rental units leads to a decrease in the rent tenants pay because the supply of housing units increases.
The intuition behind the land value tax has been confirmed empirically as studies have shown when a local government implements a land value tax, the supply of housing on a piece of land increases, thus driving down rents for tenants.
Contrast the land value tax with traditional property which tax the structures built on the land taxes. Given that property values increase when land is developed, if a landowner is looking to develop their land, a property tax would discourage them from building more structures on the land as they would have to pay a higher property tax rate compared to if they left the land undeveloped which creates deadweight loss in the housing market.
These comparatively high property tax rates make it so that landlords are discouraged from building more apartment units as it would mean upping their tax bill. A land value tax forces landlords to build more units on their property thus making housing more affordable for university students and vulnerable populations.
For this reason, county officials in Johnson County should look to scrap the existing property tax regime and replace it with a more effective land value tax.
Columns reflect the opinions of the authors and are not necessarily those of the Editorial Board, The Daily Iowan, or other organizations in which the author may be involved.