The single greatest challenge to any type of land value taxation system is accurate valuation of land on a large scale. In urban areas where nearly all real estate sales data represent transfers of land with improvements, it is difficult to divide prices between land and building components. Although many jurisdictions require a separate listing of land and building values on their tax rolls, these allocations will not affect the final tax bill if the tax rate is the same on both.

Any special tax on land value alone would increase the need to assign more accurate land values to parcels that have been improved over many years. As a result, skepticism as to the feasibility of this process has proven a major stumbling block to serious consideration of two-rate property taxes and other forms of special land taxation. Many observers have concluded that the practical problems of land assessment prevent the realization of the many theoretical benefits it offers.

New advances in computerized approaches to property assessment have important implications for this debate. While land valuation presents special problems in the analysis of sales data for improved parcels, it also can benefit from location analysis and land value mapping techniques. Buildings can and will vary unpredictably in both type or value from lot to lot, but land values for adjoining or nearby parcels should have a more constant relationship to one another. More than 20 years ago, Oliver Oldman of Harvard Law School, considered the implications of this situation for an appeals process under a land value tax, recognizing that a successful challenge to one parcel’s valuation would have implications for many other assessments as well. He wrote, “The key to developing an accurate land-value assessment roll is the process of land-value mapping.” Now the technology is available to achieve this goal.

In a recent seminar at the Lincoln Institute, representatives of the Auditor’s Office in Lucas County, Ohio, which includes the city of Toledo, joined a group of economists, appraisers, lawyers and local officials to examine current methods of land valuation. Lucas County has one of the most sophisticated appraisal systems in the country, with almost 20 years of experience in using computerized methods of spatial data analysis for property taxation. The seminar provided a valuable opportunity to discuss the county’s innovative approaches to the integration of geographic information systems and computer-assisted land valuation to estimate the effect of location on real estate market value.

Traditional Methods of Land Valuation

There are several standard methods of deriving a value for unimproved land, all extremely problematic as the basis for jurisdiction-wide assessment.

Comparable Sales: The most straightforward method is an analysis of sales of comparable unimproved land, adjusting the prices to account for any differences in size, location, and features. Similarly, the capitalization of rental income for comparable vacant land can serve as a basis for estimating its sale price. However, these methods are difficult to apply in densely populated urban areas where sales or rentals of unimproved land are rare. The pool of sales data can be expanded if sales of improved land are followed soon after by demolition of the buildings. In that case, the unimproved land value can be estimated as the purchase price minus the costs of the demolition. Although such sales provide an important check for estimated values produced by other approaches, they do not exist in sufficient numbers over a varied enough geographic range to serve as the sole basis for assessment.

Income Analysis: The land residual method begins with an estimate of the income yielded by the developed property. The building value is then calculated, and from that the income attributable to the building is derived. Capitalizing the remaining income then provides a value for the land. However, even a cursory description of this method suggests the difficulties of its application. In particular, the existence of depreciation, or any deviation from highest and best use that would distort the income available to the unimproved land, can leave the independent value of the improvements extremely uncertain.

Cost Analysis: Similar problems confront a division of value according to the depreciated reproduction cost of the improvements. This method assumes that structures can be worth no more than their cost of construction, and assigns all remaining value in the improved parcel to the land itself. Physical, economic or functional depreciation greatly complicates the attempt to calculate building value, however, so this method requires fairly new construction whose price can be confidently estimated as a measure of value. The financial effect of various forms of obsolescence can only be measured accurately through examination of sales data, which will almost never be available for the building alone.

Cost of Development: A full-scale market appraisal of potential development alternatives provides another basis for estimating the sale price of unimproved land. This is the approach taken by developers considering new uses for land, land trusts seeking to acquire and preserve undeveloped open space, and taxpayers claiming deductions for charitable contributions of development rights. However, it is most suitable for valuing undeveloped land to be used for residential subdivisions. Even in these situations, it requires extensive study of the potential market for such properties, local restrictions on development, and the physical attributes of the land that would affect its building capacity, such as soil and drainage characteristics. This type of exhaustive individual appraisal is appropriate for purchasers or developers of individual parcels, but is not feasible for annual assessments for all parcels in a taxing jurisdiction.

Other valuation methods, such as derivation of typical ratios of site value to total improved property value, are even less useful in the case of densely developed urban property, where buildings of all sizes, ages and utility may be found in close proximity on fairly similar parcels of land.

New Approaches: CAMA and GIS

The greatest change in assessment practice over the past three decades has involved the use of computers and mathematical formulas to establish a relationship between property characteristics and sale prices, thereby permitting an estimate of the market value of other properties not subject to a recent sale. This approach is known as computer-assisted mass appraisal (CAMA). Site characteristics such as size and location are important elements of these mathematical models, raising the possibility of estimating the effect of location on parcel value.

At the same time, the development of computerized geographic information systems (GIS) has permitted assessors to develop location-based property records or cadastres, and to coordinate sales data with location. More sophisticated and less expensive GIS technology now offers the potential for full integration with CAMA for spatial analysis. Initial attempts to quantify location effects faced difficulties not only in defining and maintaining “economic neighborhoods” or zones, i.e., contiguous areas of relatively homogeneous land values, but also in understanding the dynamics of the interactive, elusive locational factor. Some efforts developed different mathematical models for each geographic region or “cluster” of properties with similar characteristics. However, these approaches could not capture the many complex, interrelated and significant micro-variations within any given neighborhood, and could not reduce the determination of location value to an objective process.

Lucas County pioneered a new approach to location value-the use of GIS tools to develop a response surface that represents the effect of location on land value. The response surface is a fitted three-dimensional surface that represents a percentage adjustment to land and/or land and improvements based on a parcel’s geocoded location. Included in the analysis are geographic coordinates and distances from important features, such as other recent sales, institutions, amenities or other “value influence centers.” This analysis results in a three-dimensional representation, with the height of the surface (z) at any specific x-y coordinate indicating the approximated location value of that parcel. This variable is then evaluated with others, such as land and building size, quality, condition and depreciation, to produce a total estimated value for the parcel.

In the Lucas County example, the response surface differs from a mathematical equation in that it is developed through a spatial analysis process available in GIS to estimate the effects of location on value and refine those estimates after comparing them with sales and appraisal data. This approach still relies on an element of appraisal and economic judgment in determining neighborhood boundaries for location effects, but it can be tested and refined by observing the effect of different neighborhood “breaklines” on the resulting three-dimensional value surface.

To be used successfully in mass appraisal, these sophisticated approaches must yield results that are reasonable, understandable and available to typical taxpayers. Lucas County has pioneered this aspect of the assessment process, as well. All real estate records, values and maps are available on a CD with GIS viewing software, priced at its production cost of $10, and online free at all public libraries in the county. Taxpayers can view property records or create customized maps showing the location of multiple parcels and the relationships among their taxable values.

Future Directions

Participants in the Lincoln Institute seminar found great promise in the Lucas County approach to location value, and identified many points for further development and investigation. All agreed that recent decades have seen a literal revolution in assessment practice, with great potential for increasing the feasibility of large-scale land valuation. Among the most important theoretical questions were the “functional form” of this spatial analysis, including the type of effect on value observed with changes in location and distance variables; the identification of omitted variables (those for which data is not available or which have been overlooked in the past); and the relationship between marginal value estimates and the total parcel value needed for assessment. Similarly, the effect of substandard buildings and less than “highest and best use” on values requires further exploration.

Development of these new approaches must be matched by educational efforts to explain their operation to taxpayers, local officials, and the lawyers and judges who will consider their consistency with legal standards for assessment practice. Through its innovative efforts in both of these areas, Lucas County has made an important contribution to the theory and practice of land valuation.

Jerome C. German is the chief assessor for Lucas County, Ohio. Dennis Robinson is vice president of programs and operations at the Lincoln Institute. Joan Youngman is senior fellow and director of the Institute’s Program on Taxation of Land and Buildings.

References

International Association of Assessing Officers. Property Appraisal and Assessment Administration (1990).

Oliver Oldman and Mary Miles Teachout. “Valuation and Appeals Under a Separate Tax on Land.” 15 Assessor’s Journal 43-57 (March 1980).

Richard D. Ward, James R. Weaver, and Jerome C. German. “Improving CAMA Models Using Geographic Information Systems/Response Surface Analysis Location Factors.” 6 Assessment Journal 30-38 (January/February 1999).

Lucas County website: www.co.lucas.oh.us

It’s a Thursday afternoon in Cincinnati, and people at the downtown public library are making stuff. In the corner, a $14,410 Full Spectrum laser cutter and engraver hums away, used to create anything from artworks to humble coasters out of paper, wood, and acrylic. Over by the windows, a MakerBot replicator is buzzing; it’s one of the library’s four 3-D printers, used to fabricate a range of objects, from toys to a custom bike pedal compatible with shoes designed for a patron with a physical disability. Nearby, a young designer is producing a full-color vinyl sign with a professional-grade Roland VersaCAMM VS-300i large-format printer and cutter. “This is our workhouse,” my tour guide Ella Mulford, the library’s TechCenter/MakerSpace team leader, says of the $17,769 machine. Most of us couldn’t afford such a pricey piece of equipment, but apparently plenty of Cincinnatians can think of useful things to do with it: it runs practically nonstop during library hours, Mulford explains, and is usually booked out for two weeks in advance. 

The Public Library of Cincinnati and Hamilton County still offers plenty of books and other media for borrowing and browsing. But its roomy MakerSpace section, opened at the start of 2015 and packed with free-to-use tech tools, is an impressive example of how the library idea is adjusting to a digital era that has not always been kind to books. More to the point, it hints at an evolving role for libraries in cities large and small—contributing in new ways to the municipal fabric they have long been a part of. 

In Cincinnati, the process that led to the MakerSpace started a couple of years ago, says Kimber L. Fender, the library’s director. A smattering of libraries across the country were experimenting with technology as a new component of what they might offer the public. “And part of our strategic plan,” Fender continues, “was to introduce new technologies to our community. So we were actively exploring: What does that mean when we say that? What does it look like?” Adding a 3-D printer to the library’s existing computer center served as a low-risk experiment—and attracted the attention of every TV station in town. “There was just all this conversation,” Fender recalls. “So we thought, ‘Hm, this is getting us toward our goal.’” 

Enrique R. Silva, research fellow and senior research associate at the Lincoln Institute of Land Policy, points out that there’s no real reason to yoke the fate of the library as civic infrastructure to the fate of the physical book. “It’s a community space for learning,” he suggests. A 2015 Pew Research Center study indicates that the public agrees: While it found signs that Americans have visited libraries somewhat less frequently in recent years, it also concludes that many embrace the idea of new educational offerings in this specific context—tech included. “It’s not a difficult leap to make,” Silva says.  

Indeed, making that leap both extends and updates the role that libraries have long played in many U.S. city and town plans. One of the breakthrough developments in that history was the explosion of such institutions funded by Andrew Carnegie in the decades before and after the turn of the 20th century. Fanning out from Pennsylvania, nearly 1,700 so-called Carnegie Libraries were built in Beaux-Arts, Italian Renaissance, or other classic styles—an effort that both played into and fueled an even wider library-building movement that placed significant landmarks in municipal centers from coast to coast. While remarkable, this ubiquitous element of civic infrastructure often goes overlooked today. 

“In modern-day planning,” Silva observes, “I think libraries are largely seen as: You’re lucky if you have it as an asset, part of the bones of a city that you work around.” In the United States, at least, architecturally significant new library construction is rare (the Seattle Public Library Central Library, opened in 2004 and designed by Rem Koolhaas and Joshua Prince-Ramus, is a notable exception). So libraries tend to be planned around, as an “inherited” element of “social-civic infrastructure,” as Silva puts it. A 2013 report from the Center for an Urban Future, focused on New York City, argued that libraries have been “undervalued” in most “policy and planning discussions about the future of the city.”

But maybe this oversight implies an opportunity: These existing structures can take on fresh roles that make them newly relevant to ever-evolving municipal plans. The Cincinnati library’s rethink of what it means to be a community center of learning and information-sharing is one example. As with the Carnegie Libraries, smart use of philanthropic resources played a role: Fender says the library had a $150,000 discretionary bequest that it decided to direct to the MakerSpace. To make room, it reorganized its periodicals collection. 

The library then took an adventurous view of what kind of technologies it could offer. There’s a mini recording studio with pro-quality microphones, used by aspiring podcasters and DJs; photography and video equipment; and a popular “media conversion station” for digitizing VHS tapes and the like. There are also more analog offerings such as sewing machines and a surprisingly popular set of button-making machines. During my tour, I met a charming man named Donny—well known to the library staff—making football-themed buttons. “What’s the word, ‘entrepreneur’? That’s what they tell me I am,” he explained. 

Turns out lots of entrepreneurial types, from aspiring startup-founders to Etsy sellers, make use of the library’s offerings. There are collaborative computer workstations, connected by Wi-Fi and used by everyone from designers working with clients to students teaming up on class projects. 

And there’s a broader trend here. The Chattanooga Public Library has converted what used to be the equivalent of attic space into a maker center and public tech lab called 4th Floor, regularly hosting related public events. The Sacramento Public Library’s “Library of Things” allows people to check out GoPro cameras and tablet devices, among other tech tools. Other experiments abound from Boston to St. Louis to Washington, DC, to Chicago: according to one survey, more than 100 libraries had added some variety of makerspace as of 2014; another report said more than 250 have at least a 3-D printer available.

And the progressive thinking and creativity of libraries align with the goals of many planners: maintaining and exploiting community touch-points, often embedded deep into crucially central public spaces, and expanding the range of citizens drawn to them. Interestingly, some urban thinkers have begun to explore the potential of makerspaces arising either from the private sector or the grass roots as a component of “a new civic infrastructure.” Perhaps libraries like Cincinnati’s are already building that. 

One challenge, Fender says, is the lack of widely accepted metrics for gauging the impact on a given institution—or, by extension, its civic environment. So Cincinnati has been keeping its own numbers: in September 2015, the MakerSpace took 1,592 equipment reservations, including 92 for the MakerBot, 157 for the laser engraver, and 298 for the vinyl printer. All reflect steady or growing interest. (Thus the MakerSpace collection is growing, with the addition of an Espresso Book Machine that prints volumes on demand.) 

“The MakerSpace reminds people the library is there,” Fender says, “but it also causes them to look at it in a different way and say: ‘Oh, they’re thinking about the future, about what the community needs are, and how they can provide something more than the books on the shelf.’” 

Rob Walker (robwalker.net) is a contributor to Design Observer and The New York Times.

Photograph credit: The Public Library of Cincinnati and Hamilton County