By Daniel Wortel-London

The land-value tax is coming back in vogue among municipal policy makers and scholars of urban studies. If real property consists of both structures and land, and if the value of land is determined by locational amenities produced by a community, then that community has a moral claim to this value– or so say advocates of the tax. Taxing this “unearned increment” would also, according to according to advocates, encourage owners of vacant land to build upon their properties, or sell their parcels to those who would, and thus increase housing-stock and drive down rents. Eliminating speculative profits, lowering rent, intensifying development—what’s not to love?

Unfortunately, there has been little research into how such a policy might be implemented, or what its consequences might be. The reason for this is simple: it generally hasn’t been tried on a large enough scale or for a long enough time to answer such questions. There are precedents that we can learn from nonetheless, namely, New York City’s flirtation with the land-value tax in the turn of the last century.

The origins of the land-value tax movement in New York City can be traced to Henry George and his famous 1879 book Progress and Poverty. George saw urban land speculation as a driver of urban inequality; by reducing the supply of buildings it raised rents for tenants and made home-ownership prohibitively expensive to most New Yorkers.

Liberal reformers at the time advocated building roads and mass-transit lines to the city’s periphery, where land was more affordable, as a means of solving New York’s rent and congestion problem. For George, however, this measure was at best a stopgap. He believed land-values in the city’s peripheries would quickly escalate in the wake of these improvements, making them again unaffordable to the masses.

In George’s view, liberals who took the opposite tack of providing welfare provisions for tenants as a remedy for social inequality amenities directly to tenants were also mistaken, as their remedies would again translate into higher land values. “Suppose the very rich men of New York were to become suddenly imbued with that public spirit which shows itself in the Astor Library and the Cooper Institute,” George declared in 1883. “Mr. Vanderbilt, not to be outdone, were to assume the cost of putting down good pavements, and cleaning the streets, and running the horse-cars for nothing; while the Astors were to build libraries in every ward. The result would be that New York being so much more desirable a place to live in, more people would desire to live in it, and the landowners could charge so much the more for the privilege. All these benefactions would increase rent.”

Some of us are familiar with George’s remedy for the evils of speculation and rent-seeking; a “single-tax” that would confiscate all value attached to a parcel of land by virtue of neighboring improvements and which would, George claimed, force landowners to construct dwellings upon them or sell them to those willing to do so. Scholars of gilded age labor are also aware of how New York’s working-class artisans were greatly attracted to the anti-speculative nature of this policy’s producerist logic and the promise of home-ownership it offered laborers, and with how these workers came close to electing George Mayor of New York City in 1886. What most people do not know, however, is that George’s defeat marked the beginning of the land-value taxation movement in Gotham.

This movement was not so much spearheaded by grassroots social movements as we understand them today, but rather by a powerful lobbying organization and well-placed bureaucrats within New York’s municipal government. The former was the innocuously named New York Tax Reform Association, formed in the early 1890s by followers of Henry George. In terms of bureaucrats the land-value tax movement could count amongst its advocates New York’s tenement house commissioner, register of the Bronx, chief tax commissioner, and several other committee chairs and secretaries by the early 1910s.

While ultimately in favor of George’s single-tax proposal, most of these individuals and groups had the more subtle and immediate goal of enhancing the ratio of property taxation represented by land as opposed to buildings and ensuring that this land was being taxed to its full market value. At the time there was a “long and well-recognized custom” that city real estate should not be assessed at more than 65 percent of this market value, and land at only 30 percent of its value. Such policies rewarded speculators and penalized the small-home builder, Georgists charged.

Lawson Purdy, appointed head of New York’s department of taxes and assessments in 1905 and a closet Georgist, transformed this situation dramatically under the banner of “full assessment” of land. His policies had immediate fiscal consequences; “full assessment” yielded the city increased tax revenue from this source by an outstanding 42% in only a year. It also had equitable consequences by placing a heavier tax burden on wealthy Manhattan, where land was worth far more than buildings, than on the far less valuable landed property of small home-owners in the city’s periphery.

These important but behind-the-scene maneuvers by the Georgists received a shot in the arm in 1906 when a collection of some of New York’s premier reformers, dubbed the Committee on the Congestion of Population in New York, publicized the causes and consequences of congestion and the high rent they believed caused it in a public exhibition. The dramatic images and data they assembled, together with the seeming failure of the new-fangled subway to relieve the ills of congestion, galvanized public opinion and provided a brief window for alternative means of accessing the city’s periphery and lowering rent. The land-value tax was one such solution to both, and the Georgists jumped at the chance.

Between 1911 and 1915 Georgists led an effort to pass legislation halving the tax rate on buildings and correspondingly increasing taxation upon land. What other groups supported this measure? Several tenant organizations supported it because it would save the rent-payer at least a month’s worth of rent, at least according to advocates. Savings and Loan Associations (S&Ls) representing the prospective homeowner also signed on to the land-value tax. At the time large insurance companies and savings banks tended to invest their mortgage money in apartment houses and office buildings, leaving the small home seeker dependent upon S&Ls for aid. These organizations saw the land-increment tax, by cutting taxes on buildings and forcing speculators to sell to the small home-buyer, as encouraging homeownership among the city’s working-classes and therefore supported it heartedly.

Where did existing homeowners fall on the issue? An economist at Columbia, Robert Murray Haig, noted in 1915 that the land-increment tax would generally reduce the taxes of homes at the city’s periphery, which seemed to bode well for its support among homeowners. Haig warned, however, that home-owners seeking to profit by “flipping” their property would be harmed by the measure, as their “house will not sell for more because of its lowered tax while his land will sell for less because of its increased tax.” Whether a homeowner benefited from the tax would in the end “depend upon the relative importance of his gain as a tax-payer and his loss as a land-owner.”

On this ground, working-class homeowners largely stood to benefit from the tax as any hopes of speculative profit from landownership on their end was dwarfed by their immediate need for affordable and lightly-taxed homes. Historians have traced how such homeowners consistently resisted even seemingly innocuous public improvements in their neighborhoods, such as sewage systems and paved roads, that might lead to higher taxes upon their hard-earned homes. Any policy that served to reduce this tax won their approval. It was largely for this reason that artisanal labor-unions, whose members owned homes at even higher rates than many middle-class professionals in the early 20th century, heartedly supported the land-increment tax in New York City.

Conversely, for middle-class homeowners the value of property was only secondarily attached to the utility of buildings; they saw the land, specifically property values, as a source of income and upward mobility. Unlike working-class citizens they were willing to pay higher taxes on their buildings for public improvements that might enhance the value of their land, while being far more hostile to taxes that threatened said value – such as higher taxes on land. The opposition of the city’s growing suburban middle-class – together with the more obvious opposition of the city’s powerful developer and banking interests – was enough to ultimately defeat the land-increment tax campaign by the mid-1910s.

The story does not quite end here, however. Following World War One an enormous housing crisis hit New York City due to the growing costs of building materials and labor. With construction halted and overseas veterans returning, vacancy rates plummeted from around five and a half percent in 1916 to a third of one percent in 1920. Unable to move, tenants were vulnerable to dramatic rent increases from their landlords; between July of 1914 and 1919 wage-earners saw their rents increase more than 51 percent on average, and continued to rise.

Under these dramatic conditions desperate builders and banks, along with several tenant unions, seized upon tax cuts as a means of ending the housing crisis and lowering rent. This unlikely coalition succeeded; in 1921, an ordinance was passed exempting taxes on most new buildings or large apartments for 10 years. This was not strictly speaking a Georgist program, as it excluded already-built housing from the tax cuts and did nothing to further shift the property tax’s burden onto land in any way. Nonetheless, both Georgists and their opponents eagerly reported upon the effects of this legislation as a kind of referendum on their policies. Would the “invisible hand” of supply and demand respond to the prod of government incentives, and would that hand rescue New York’s most vulnerable?

The most immediate effects of the tax-exemption was a decade-long building boom that remains the largest in New York’s history; between 1921 and 1923 construction outlays were seven times that of the three years prior to the act, and throughout the 1920s New York would account for roughly 20 percent of national residential construction; a rate that was exceptional even in the context of the roaring 20s. Vacancy rates rose as a result, reaching its pre-war level of 5 percent in 1927. Furthermore, because land continued to be taxed as usual under the terms of the exemption, this building boom born of a tax cut wound up dramatically enhancing the city’s coffers. Even as overall tax rates were kept down, New York continued to expand its welfare and social services through the decade.

But now we come to the crux of the matter: did this building boom end the rent crises? A short answer would be no. There is, however, a longer answer. For most New Yorkers rents did indeed rise through the decade, but at a much slower pace than earlier. Whereas the average rent rose from $138.1 to $162.4 a year between 1920 and 1923, between 1923 and 1926 the number only rose to $170.2. Whereas rents had been increasing by nigh-catastrophic levels before the tax exemptions, ultimately the average citywide rate of increase was only 10 percent between 1919 and 1927.

And yet such aggregate numbers distort the picture. For African-Americans in Harlem segregated out of the housing market, rents increased by almost 100 percent during the exact same years. For poor New Yorkers more generally, the effects of the tax exemption seemed to make little visible, positive difference in their rent levels. While wealthy and middle-class New Yorkers could take advantage of the vacancies enabled by mass construction to negotiate lower rents, these vacancies did not “trickle-down” to poor neighborhoods to any degree so “noticeable as to demand consideration,” in the words of a 1926 report, The Cost of Living in New York City.

By the mid-1920s lower-income tenants and progressives tarred the tax exemptions as giveaways to the rich, and in 1925 successfully pressured the New York State legislature to allow the ordinance to lapse; henceforth no new buildings would be granted tax exemptions. Disabused of their faith in the invisible hand, a growing number of progressives would embrace rent control and (even more radically) public housing as more direct means of securing lower rents. Simultaneously, the fiscal benefits of full land assessments were forgotten as subsequent municipal administrations pledged to lower taxes for the city’s growing suburban middle-class. By the 1950s the promise and potential of land-value taxation was largely forgotten by both the right and the left. In fact, we’ve gone significantly backwards; since 1983 New York has legally committed itself to taxing different classes of property at different rates, with Manhattan property owners benefitting at the expense of renters and small businesses at the city’s periphery. Purdy must be rolling in his grave.

What conclusions can we draw from this narrative? The first is that the passing of any land-value tax measure would have to occur under particularly dramatic and rare circumstances. While New York’s current vacancy rate of 3.8 percent is rather tight, it is not yet close to the even tighter market that confronted many New Yorkers in the early 1920s. Furthermore, the alliance between hard-pressed tenants and blue-collar homeowners that gave this measure whatever political momentum it had through the early 1910s seems unlikely to be repeated now.

Even if it were to be passed, its effects would not be a panacea for the rent crisis. For one, New York’s zoning laws would have to be confronted in order to intensify development so as to make substantive differences in vacancy rates; an issue that booming New York in the 1920s did not have to face as much given the amount of undeveloped land it still possessed. Furthermore, if the largest building boom in New York’s history was not enough to translate into lower rents for the city’s poorest, it suggests that other forms of housing subsidies or policies will be needed to safeguard this population even if and when land-value taxation is passed today. And we should ask whether the environmental damage wrought by reproducing such a boom would be a “consummation devoutly to be wished.”

All that being said, the land-value tax deserves to be passed for several reasons. New York’s middle classes and creative precariat deserve aid, and their predecessors’ experiences in the 1920s suggest that an exemption-driven building boom would indeed help lower, or at least stabilize, rents for them. The policy of fully taxing New York’s vacant residential land is also fiscally useful; currently New York taxes such land at a mere six percent of its market value, robbing the city of both structures and revenue. And more fundamentally, the moral critique of the “unearned increment” that siphons off society’s wealth to the rent-seeking Trumps and Ratners of the world remains as pressing as ever.

We must not forget that the “Golden Age” of income equality (at least among whites) during the 20th century, roughly from the years 1945 to the 1970s, cannot be attributed to any one universal policy. Minimum wage laws, full employment programs, and progressive taxation: these and other measures contributed differently in different places to a general tendency towards higher social mobility and class leveling across the western world. This applies to cities as well. We will need all the policy ammunition we can get if we are to arrest, much less reverse, the inequality that blossoms in our cities like cancer. The land-value tax is one such bullet—not silver, but deadly if aimed right.