Land value capture enables communities to recover and reinvest land value increases that result from public investment and other government actions. Also known as land value return, it’s rooted in the notion that public action should generate public benefit.
Communities around the world face a crisis of investment. Deteriorating infrastructure, rapid growth, urbanization, and climate change—among myriad other challenges—create demands that governments at all levels are potentially ill-prepared to meet. Yet these communities often give away their most valuable resource: land.
The public sector contributes greatly to urban land value through public-works projects, zoning changes, and other interventions. Land value capture ensures that communities can recover this land value and reinvest it in public goods such as infrastructure, affordable housing, and economic development.
The property tax, one of many tools for land value capture, is the bedrock of municipal fiscal health and a stable, ongoing revenue source that enables the long-term provision of essential services.
Common land value capture tools include: transferable development rights, betterment contributions, public land leasing, inclusionary housing and zoning, linkage or impact fees, business improvement districts, and certain applications of the property tax.
These tools can help finance transit and infrastructure improvements, affordable housing, parks and open spaces, utility upgrades, and other critical services. With this additional funding, local and regional governments can more sustainably advance municipal fiscal health, enable infrastructure investment, and address the challenges of sustainable urbanization.
Widespread implementation and adoption of land value capture tools can ensure that when public investments succeed, the public benefits.
Since the sixteenth century, forms of land value capture have been used to great effect across Europe, Asia, and Latin America. More recently, Brazil has deployed land-based financing in several cities, and similar programs have been proposed in Australia and the United States.
Given the growing infrastructure deficit in the United States and the rapid expansion of megacities in the developing world, the need for new approaches to financing urban infrastructure—and improving quality of life for all residents—is clear.
Martim Smolka, Director of the Lincoln Institute of Land Policy's Program on Latin America and the Caribbean, explains how value capture has been implemented in Latin America.
A mainstay of local government, property taxes can deliver a fair, democratic, stable, and efficient source of local revenue-and can be an important form of land value capture. In jurisdictions with a well-functioning property tax, land value increases result in higher assessed values for properties near planned public investment-and such taxation captures value.
When implemented well, the tax is highly transparent; citizens can clearly see how tax dollars are spent and hold local governments accountable. In the United States, property taxes generate some $472 billion annually in local revenue, a critical source of funding for schools, police and fire protection, and other public services. Worldwide, property tax systems are well established in Europe, Australia, and throughout Latin America, and they are under development in Eastern Europe, Africa, and China.
Many communities use tax-increment financing (TIF) to promote economic development by earmarking property tax revenues within a designated district. While TIF does not capture additional land value, this approach can direct a portion of land values captured by the property tax toward specific public purposes.
The Lincoln Institute actively provides technical assistance, information, and analysis on the property tax all over the world-including most recently in Africa, where well-functioning property tax systems create stability in local governments.
In 2007, the Lincoln Institute and the African Tax Institute (ATI) of the University of Pretoria, under the direction of professor Riël Franzsen, established a joint venture to research and analyze property tax systems throughout Africa, in order to help improve tax policy there. The research covers more than 35 countries, as documented by Property Tax in Africa, edited by Franzsen and William McCluskey, published by the Lincoln Institute in 2017.
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