Opinion: How to tackle Detroit's empty parking lots

David Guenther | The Detroit News

Broken promises, misallocated public subsidies and relentless demolitions have rendered a large swath of downtown Detroit a sea of empty parking lots. Employing an "acquire, neglect and demolish" strategy for over two decades, the Ilitch family is the primary culprit in this scheme.

Seven years ago, in a bid to drum up support for a new, publicly‐subsidized stadium, the Ilitches made grandiose promises to build thousands of apartments, and yet the family has repeatedly displayed an unwillingness to do anything other than expand their vast parking empire.

Set amongst the backdrop of a community struggling to balance growing demand with affordability, the public rightfully views the Ilitches significant downtown landholdings as a prime opportunity to ease the burden on the city’s housing stock and to mitigate accelerating gentrification.

More: District Detroit: Inside the Ilitches' land of unfulfilled promises

Despite mounting local and national pressure, Mayor Mike Duggan has seemingly thrown his hands up on the matter, pleading that his absence in drawing up the contractual subsidy agreement obviates any personal responsibility and going as far as to say, “making them live up to their promise to build more housing downtown is not a priority.”

While Duggan may be correct in claiming that a legal remedy obligating the family to comply with their promise does not exist, he’s wrong to believe the city is helpless. Rather than relying on public pressure and a poorly conceived contract, a simple change to the tax code can incentivize the Ilitches as well as other speculators to either develop their land or sell it to someone that will.

Most municipalities determine your bill by estimating the value of your property and applying a predetermined tax rate. This value typically consists of two components: land and real property (anything that’s permanently built upon the land).

On one hand, this makes sense: You’re paying a tax based on the value of what you own. On the other hand, the more you invest, the higher your taxes are. In effect, owners are discouraged from developing their property by penalty of higher taxes.

This system has created a perverse incentive for owners to find ways of generating income without building real property on top of their land. As you may have guessed, constructing parking lots is a great method of accomplishing this goal. Fortunately, there is an alternative method of administering property taxes.

Rather than taxing both the land and real property, the city of Detroit should opt to solely tax the value of land, otherwise known as a Land Value Tax. Under this system, a property owner pays the same tax bill regardless of what sits atop their land.

While it might seem like a trivial difference, this arrangement flips the entire set of incentives on its head. With each additional square foot, landowners would instead be able to spread their tax bill out more efficiently across their property. For each new apartment built, the tax bill per apartment actually decreases.

Given that land values are based on what is buildable under the zoning code, in a Land Value Tax system holding property that consists of anything less than the maximum allowed becomes prohibitively expensive, rendering long‐term speculation impractical and parking lot proliferation unprofitable.

In an attempt to ease any outstanding concerns, consider that under a Land Value Tax system:

►Seeking less expensive land, groups would likely start to shift their focus outside of the immediate downtown, drawing sorely needed investment to the city’s neighborhoods.

►The transition could be designed as revenue‐neutral, meaning property owners as a whole won’t bear a larger tax burden; rather, the burden will simply shift from responsible parties to bad actors.

► The city could offer property tax exemptions to groups that commit to building affordable housing, further incentivizing investment in communities that need it most.

► In the case of historic structures, the zoning code could be adapted to their existing use, so as to not encourage their demolition.

►The role of the tax assessor’s office would be drastically reduced as they would no longer need to constantly re‐assess every building in Detroit, while also safeguarding residents against the over‐inflated, subjective tax assessments that have plagued the city in recent years.

While new challenges would inevitably arise, the simplicity of a Land Value Tax and the accompanying realignment of the incentive structure would spur a meaningful increase in development across Detroit.

Looking ahead, any overhaul to the system would likely require an agreement between the city and Wayne County, two groups that have often sparred during negotiations.

However, if there’s one thing this entire episode has made clear, public pressure for change can go a long way in capturing attention from local officials. This time, though, the goals are achievable and there won’t be any excuses.

David Guenther is the founder of the blog "Detroit: City Resurgent," covering local development, urbanism, and politics.