Financial Incentives to bring properties up-to-code?

Replies to This Discussion

Permalink Reply by Rick Rybeck on September 6, 2011 at 6:12pm

There are about 20 jurisdictions in Pennsylvania that have reduced or eliminated the property tax disincentive that creates a barrier for the construction, improvement and maintenance of buildings.  The typical property tax is about 1% or 2% of value.  However, that tax is paid not only when an improvement is made, but every year thereafter that an improvement adds value to the property.  Using a net present value calculation, the economic impact of the property tax on building values is equivalent to a sales tax of between 10% and 20%.  That's a very substantial additional cost that can be a barrier to building maintenance and improvement -- particularly for landlords serving low-income tenants.

 

The Pennsylvania jurisdictions mentioned above have remedied this situation by reducing the property tax rate applied against building values.  This makes building maintenance and improvement less costly.  At the same time, these jurisdictions have increased the tax rate applied against land values.  This helps keep land prices low.  These two steps combined provide an impetus for affordable infill development and for better maintenance of existing buildings.  Harrisburg, in particular, was very successful using this technique to rebuild its downtown after devastating floods from Hurricane Agnes in the 1970s.  After implementing this tax modernization, Harrisburg's status changed from being one of the country's most distressed cities to being one of its best and most livable.

 

For more information, see http://www.justeconomicsllc.com