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Sunday, June 28, 2009

Taxes and Urban Rot

The following essay by W. Philip Cotton, Jr. appeared in the volume "Laclede's Landing" Area, published by Landmarks Association of St. Louis in 1968. When I first unexpectedly found this essay tucked in a booklet on Laclede's Landing, I was impressed by Phil's astute observations on taxation policy and its relationship to preservation of historic neighborhoods. In 1968, in the era of wide admiration of singular works of architecture, this line of preservationist thought was truly progressive. Phil's words on the use of government incentives are prescient. Yesterday, at a memorial service, we celebrated Phil's work and contributions. I wish to again state that his legacy is worth the consideration of today's preservationists. -- MRA

Taxes and Urban Rot
by W. Philip Cotton, Jr.

Wrong methods of taxation are a fundamental cause of urban decay. One might ask what taxes have to do with landmarks? For landmarks thought of in the narrow sense of isolated buildings the question is not so significant, but for landmarks of the urban environment, districts and sections which are the essence of a great city, taxes are highly significant. It is necessary, at times, to go beyond the confines of a specific concern or interest to get at fundamental components or problems.

The first sentence above states that "wrong methods" of taxation are a root cause of decay and slums in cities. The principle word is "methods." The amount of taxes is not necessarily the determining function, but, rather, the way they are raised profoundly affects the state of health of the city. The old tax on windows in England had an obvious effect on the number of windows in a building. It is easy to picture that this method of raising the necessary revenue had at some point a deleterious effect on public health, as many habitations would be without sufficient light and air.

Our present policies of taxing land and improvements (with the greater portion derived from improvements) have recognizable effects: slums are the most profitable housing investments, not because of any inherent attractiveness of slums but because of tax policies. For letting buildings decay one is rewarded with lower taxes; on the other hand, improvements are penalized with higher taxes. Decay spreads faster than we can treat its symptoms, which we usually do with one or more government programs. There is little chance of fundamental improvement or reform from within our government; it can come only from an aroused citizenry which is aware of the fundamentals of cause-and-effect economics as distinguished from social-reform economics.

Another great obstacle in the way of fundamental reform of taxation is the implicit belief in the Eleventh Commandment, "Thou shalt not rock the boat." -- even if by rocking, the boat be saved from sinking. For many this is a greater imperative than the other ten.

As long as slums provide a higher economic return on investment than well maintained housing, the various government appeasement offerings serve only to reward the slum owners and temporarily pacify slum inhabitants. "More than fifty years ago Lloyd George warned the British Parliament that 'low rent public housing bills will never be effective until you tackle the taxation of land values.'"* In 1960 the Mayor’s Special Committee on Housing in New York City reported, "The seemingly unstoppable spread of slums has confronted the great cities of the nation with chronic financial crisis ... The $2 billion public housing program has not made any appreciable dent in the number of slum dwellings ... No amount of code enforcement ... will be able to keep pace with slum formation until and unless the profit is taken out of slums by taxation."*

The idea of taxing land values and not taxing improvements is neither new nor untested theory. Where it has been fairly tried it has produced effects which can readily be observed and evaluated. Brisbane, Australia has not had taxes on improvements since 1896; it taxes only the unimproved value of the land. Colin Clarke, economist at Oxford University, who lived in Australia for twenty years writes of Brisbane that it is "the only great city in the world without a slum."*

The restraining effects of taxes on improvement in St. Louis are so great that to stimulate major new construction in the city it is necessary to use the Missouri Redevelopment Act making it possible to give a near exemption from property taxes for a decade or two. This subsidy at the expense of all other property owners (and taxpayers in general) is necessary to attract new investment in improvements. Why not give, in effect, a subsidy to all who improve and maintain their properties by untaxing improvements and taxing only the value of the site location which is created by public improvement and population rather than giving the subsidy to a few?
Private enterprise cannot solve the housing problem and other problems of the urban environment as long as the profit motive is harnessed backwards. Until there are financial incentives for improving and maintaining property and thus, in effect, penalties for decay and rot, there is no hope for substantial improvement.

The fundamental answer to the problem is not charity without tax reform. Winston Churchill writes, "...a friend of mine was telling me the other day that, in the parish of Southwark, about 350 pounds a year was given away in doles of bread by charitable people in connection with one of the churches. As a consequence of this charity, the competition for small houses and single-room tenements is so great that rents are considerably higher in the parish! All goes back to the land, and the land owner is enabled to absorb to himself a share of almost every public and private benefit, however pitiful those benefits might be." So the rot was then and so it will remain until we stop subsidizing slums and penalizing well maintained property by out ill-conceived tax policies.”

* "Taxes and the Death of Cities" by Perry Prentice. Architectural Forum, November 1965.


Dave Reid said...

Every time I read about a land value tax it seems like it might be a better solution, but I wonder what the downside might be?

Amber said...

Wow, what an article! I grew up in Brisbane, Australia so was alarmed to see it mentioned. I moved to St. Louis in 2006 and can quite honestly say that this antiquated article is unfortunately correct- Brisbane *definitely* has slums nowadays. Despite efforts at revitalization, and the fact that some of the areas which were considered seedy when I was growing up are now 'trendy', I would still take St. Louis any day of the week :)

Keep up the fab work :)