Thursday, June 18th, 2009
Jim Meredith over at Archizoo bemoans the state of retail overbuilding in America and looks at ways to prevent it. These range from “certificates of need” as some states require for hospital expansion to new zoning standards. Take a look for yourself.
This reminds me that I’ve been remiss in following up on my “Buildings Suburbs That Last” series. So look for more installments of that shortly. This post isn’t per se about that, but does talk about how we discourage overbuilding.
In some states – and I don’t have a full list, but know it includes Midwestern states like Illinois and Indiana – collect property taxes in arrears. That is, in 2009 you are sent the bill for your tax year 2008 taxes. Normally this doesn’t matter to you since you owe taxes every year, but when it comes to newly developed property it does.
When you go out to a cornfield in the suburbs and convert that into houses, the land is usually assessed at a very low agricultural rate. It can take a while for the property to even be re-assessed as higher value residential, then it will be another year or more before the value of that property is factored into the property taxes.
The net result is that when you buy newly developed property in the suburbs, whether for a house or for a new retail center, you are in effect getting a one or two year tax abatement as a reward for building on a corn field. If you had bought and existing home, you’d start paying the full tax value of that home immediately. But by buying a new development, you get a couple of years of farm field taxes. Given the size of many property tax bills, you can see how this encourages sprawl.
I know this effect is real because I’ve benefited from it personally some years back when I purchased a new construction condo in Chicago in a building erected on an old parking lot. This was infill development, not sprawl, but the same principle applies.
As a general rule, I’m not sure we should be encouraging people to build new vs. re-using existing. At a minimum, we ought to at least have a level playing field. In that regard, figuring out how to start prospectively collecting taxes on the fully improved value of the parcel immediately should help to reduce the incentive to sprawl.
This is not my idea, by the way. If the person who gave it to me wants named credit, I’m happy to add to the article.