In Seattle real estate developments are taxed primarily through property taxes. These taxes are based upon the total value of the land plus that of the building’s. This tax structure punishes people for investing in bigger, better, buildings which could allow for higher density, and rewards people for retaining smaller buildings that do not. By switching from Property Taxes to Land Value Taxes (LVT) – a tax that is based solely upon the value of the land, sans building – there would be sufficient incentive for property owners to utilize their land optimally.
Through this we could rid ourselves of the shabby one or two-story buildings tax up prime real estate in dense six-story neighborhoods. This is because with a LVT system the one-story building would have to pay the same taxes as the six-story building would (assuming it’s on the same land). Thus, providing a huge incentive to tear down the one story building and build to the maximum stories.
This can be effective strategy for implementing and achieving Seattle’s transit oriented development (TOD), where land is limited and increasing access to public transportation, through density, is the primary objective. An additional benefit of LVTs is that they would dissuade developers from sitting on large swaths of undeveloped land for years on end. Thus spurring development in more smaller, predictable, fashion which could offset the negative public perception that densification is achievable only through megalithic structures.
Additionally, incentivizing affordable housing as a tax reduction could spur developers to build more than the bare minimum to achieve a higher FAR. By basing them as percentage of total units they could be easily factored into a tax reduction equation. This system would be for the benefit of not only the developer, but the citizens of Seattle who are increasingly being priced out of the market due to influx of high salary tech workers.