Tax Land, Not Buildings, to Spur Development

Blog Post
Two bridges connect a town with skyline across both sides of a forked river.
Bronwyn Lipka/New America
Oct. 21, 2025

This article is part of The Rooftop, a blog and multimedia series from New America’s Future of Land and Housing program. Featuring insights from experts across diverse fields, the series is a home for bold ideas to improve housing in the United States and globally.


This year, local governments in the United States will collect more than two trillion dollars in property taxes—the single largest source of local revenue. While treated as a single levy on the total value of property, property taxes are actually two taxes disguised as one: a tax on buildings, and a tax on land. Loosely speaking, in a typical mid-sized city, around two-thirds of the tax on a given property come from the building tax, and one-third comes from the land tax. Taxing buildings harms our communities by discouraging development, while taxing land helps our communities by discouraging speculation. If we want cities to expand and become more affordable, we should realign the split to tax land more and tax buildings less.

Because property taxes directly shape how cities grow, they are one of the most powerful levers available to promote housing and reinvestment. Rather than treating property taxes as one tax on the full market value of property, local governments can decrease the tax rate on buildings and increase the rate on the value of land. Through this shift, local governments can align market incentives with the public good: encouraging more housing, infill, and mixed-use construction while being revenue neutral. In doing so, they advance the principle of land value return, ensuring that the rising value of land created by public investment and community life flows back to the community itself.

Taxing Buildings Backfires

If you want less of something, tax it.

Every new home, apartment building, or storefront comes with an annual penalty in the form of a tax simply for existing. Unlike a one-time fee or sales tax, this penalty recurs year after year. From the moment a wall goes up, the meter starts running.

At a typical urban property tax rate of around 1.2 percent, the annual levy on a building steadily chips away at its value. Over a 30-year span, the net present value of those taxes eats up 20 percent of the original construction cost—one out of every five dollars invested. For multifamily housing, that lost capital could have financed more units or higher-quality construction. For a backyard cottage, that annual tax bill can be the difference between building it or not.

Building taxes act as a drag on development, making it harder to expand housing supply where it is needed most.

Taxing Land Unlocks Growth

The land tax, on the other hand, discourages speculation. Buildings can be added or removed, but land is fixed in place, so taxing land changes how it is used rather than how much of it exists. A higher tax on land makes it more costly to sit on empty lots or underused parcels, discouraging owners from treating land as a passive investment. By taxing the underlying location rather than the structure, cities shift the owners’ incentive from holding to building. And the places where land is most valuable are the places where public investment meets community demand, as in areas near schools and transit. Taxing land more fairly returns the public investment to the community that made the land valuable with their tax dollars.

Land value taxation works because it drives the selling price of land down while driving the holding cost up. Instead of being an appreciating asset best left idle until values rise, land becomes more profitable when put to use. The policy generates profits from providing homes, stores, or offices, not from appreciating land prices.

Achieving Land Value Tax Shifts

Where cities have applied this principle, the results are clear. In Pennsylvania, cities are already authorized to administer split-rate taxes, with a higher rate on land than on buildings. Under Pennsylvania’s split-rate system, municipalities that raised the tax rate on land while lowering the rate on buildings experienced more infill development, more new housing units, and less speculation.

Unlike in Pennsylvania, cities in other states need permission from state legislatures to adopt this type of tax code. In the past year, six states have introduced enabling legislation for cities to capture land value: Colorado, Maine, Maryland, Minnesota, New York, and Virginia.

Maryland already allows cities to enact split-rate taxes, but not counties or the city of Baltimore. Last session, in a proposal backed by the transit union, the Maryland State Senate passed legislation to enable split-rate taxation for counties and Baltimore within one mile of transit corridors to encourage more transit-oriented development. Baltimore has expressed interest in putting it to use, given its high vacancy rates and a property tax burden nearly double that of any other county in the state.

“For communities grappling with affordability, vacancy, and growth, land value return offers a flexible and powerful tool to realign incentives and put land back to work for the public good.”

Split-rate taxes are not the only avenue to shift building taxes to land value taxes. The city council of Spokane, Washington has made land value return a legislative priority and is seeking state authorization for broad building exemptions to accomplish this goal. Reducing or removing buildings from the tax base, in turn, raises the tax rate applied to land. The effect is similar to a split-rate system: The tax burden shifts away from construction and toward land, creating stronger incentives to put vacant or underused parcels to work.

These shifts are not one-size-fits-all, nor are they all or nothing. At the Center for Land Economics, we combine economic modeling with policy design to give cities and states clear direction on how land value return can be tailored to their legal and fiscal structures. Local governments can turn the dial on how much of the tax burden shifts from buildings to land, phasing in changes or targeting them to specific areas such as transit corridors or redevelopment zones. The right mix depends on the legal framework, market dynamics, and political conditions of each jurisdiction.

For communities grappling with affordability, vacancy, and growth, land value return offers a flexible and powerful tool to realign incentives and put land back to work for the public good. With property taxes the largest source of funding for our local governments, it’s time to ease the tax on buildings, raise it on land, and use that power to build stronger communities.


Editors note: The views expressed in the articles on The Rooftop are those of the authors alone and do not necessarily reflect the opinions or policy positions of New America.

You May Also Like

Keeping Housing Affordable Is Hard Enough. Unfair Taxes Make It Worse. (The Rooftop, 2025): Shared equity models can help make homeownership accessible and address racial wealth gaps. Outdated tax policy shouldn’t stand in the way, Colby Sledge argues.

What Austin’s Pro-Housing Wins Can Teach Us (The Rooftop, 2025): Henry Long explores how five years after failed zoning code reform, the city made lasting progress that other places can emulate.