It is apparently standard practice for assessors in some places to value large parcels of land very generously. I'm not talking about special valuations for farms or forests (even if they are long-fallow and in areas where land sells for hundreds of thousands of dollars per acre). Rather, I am talking about valuations which treat the portion of an owner's land beyond the minimum zoning size as if it were worth perhaps 10% of its real value.
This happens in fairly dense suburban neighborhoods and in places where much larger lots are the minimum.
In small-lot neighborhoods, occasionally an owner will have a double lot, unsubdivided, but instead of it being assessed at twice what the neighboring lots are, the assessor values it at about 110% of them. His "private park" doesn't share much in the supporting the local government, and the landholder has a fine appreciating asset he can sell, not at 10% of its value but 100%.
In similar neighborhoods, a lot that is 50% larger than the minimum may not actually be worth 50% more to a buyer, particularly if the house is new, but if the house is aging and smaller than current buyers tend to seek, a larger lot will be worth more than neighboring minimum-sized lots because (a) it may allow a buyer to add to the existing house, or (b) it allows someone to build a larger house on the site, or to locate a new home more advantageously within the site. It seems to me that the assessment should account more fully for this value. It is quite real.
What got me thinking about this was exploring local real estate listings on a new national website called frontdoor. There is a 62-acre property on the market for $23 million, approved for 18 building lots. The assessment database shows it as 61.03 acres, and values it at $2,928,580 (at 70%, which equates to a real full market value of $4,180,000). The valuation for property tax purposes is for less than $69,000 per acre. In 2003, it changed hands for $6 million; the owner is a corporation in Delaware.
Nearby is another large parcel of 52.71 acres, which the city values at $2.7 million (70%). It is part of a 262 acre property (with a 20,000 sf residence and a number of other staff buildings) currently on the market for $95 million.
Why do we grant such breaks to large landholders?
A few miles from these properties, there is another, of about 23 acres, owned by the local (RC) diocese. It is valued by the assessor at about $2.8 million in total. Of course it is tax exempt, so the valuation doesn't make a lot of difference to anyone else's taxes. But the house on the property has been empty for a few years since the sisters left, and the sign at the end of the driveway was knocked to the ground some time ago. 1-acre building lots are worth at least $400,000 each; making some allowance for a road or two to run through it for access, that's about $7 or $8 million. And some day, the diocese will sell. Yet no provision exists for the town to take back some of that "capital" gain (except perhaps via a small transfer tax -- 0.25% of the selling price, the last time I heard -- and the local real estate brokers, who get 6.00%, assert that it is unjust!).
The landholder doesn't create the value. The community does. And yet the landseller leaves town with all that accumulated economic rent, and the rest of us pay taxes on our buildings and houses to provide the services that make the land valuable.
We are about an hour from mid-town Manhattan. People commute much further than from here to get there, and while I can understand the desire to preserve open spaces, it seems to me perverse in a way to set up our incentives in such a way that more people must travel further and further daily to get from jobs that pay well or provide interesting work to land they can afford. (I realize that few understand that there is actually an alternative -- which is why I started this blog in the first place!)
As the old commercial for a long-defunct airline put it, "is this any way to run an airline?" You bet it isn't.
Can we fix it? Yes. If we choose to. If we don't let vested interests, with privileges to protect, make the argument that it is somehow to the common good to give them those privileges and subsidies. The first step is to call attention to the problem.
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