Growing up in Milwaukee, I always wondered how surface parking lots existed downtown, which were better suited for more intense development. I was even more shocked upon visiting Minneapolis. Minneapolis has significant amount of land devoted to parking. Just take a look at this aerial of downtown.
This sea of surface parking, especially on the east end of downtown, has been blamed for destroying the character and potential of what should be the densest area in the city. Conventional property taxes encourage this pattern of (non) development, as buildings are taxed at the same rate as land; instead of building structures which would be taxed, land owners can sit on unimproved land with the revenue earned from parking. As all of the lots are privately owned, the city has limited options in encouraging development: zoning, TIFs, subsidizing development, eminent domain, and taxes.
After considering the options, the city has begun to look into developing a two-rate tax system; this could help to encourage more productive and efficient lands uses, while at the same time discouraging over-speculation that creates real-estate bubbles, as proposed here by Rick and Will Rybeck. Essentially, land would be taxed at its development potential so that land owners at less than maximum productivity would be taxed at a higher rate.
A case study of the property taxes paid by three adjacent land owners in downtown Minneapolis proves the point: a surface parking lot pays $1.57 per square foot of land, a parking ramp pays $3.70, and the Minneapolis Grain Exchange building pays $65.34 per square foot.
There are many roadblocks to developing this system and changing from the conventional tax structure; however, we must realize that many of our old systems no longer fit the urban reality and redesign them to address the changes in technology and economy. While the two-rate tax system is not a new idea (it was used in Pittsburgh from 1914 until 2000 with success), it may be a huge step in the right direction to encouraging productive land uses and denser development in downtown areas currently swimming in parking.