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NationofChange / Op-Ed
Published: Saturday 8 October 2011
“With the recession sharply curtailing revenue, that doesn’t leave much money for inventive job-creating agendas.”
Taxing Nothing: Make Owners of Vacant Property Pay
Virtually all forecasters are now projecting the unemployment rate to remain high for years into the future. This is the result of the political deadlock in Washington, where the Republican leadership has made it clear that it will oppose any further measures to create jobs.
If nothing happens in Washington, then state and local governments are left to fend for themselves. Unfortunately state and local governments have two serious disadvantages in the job creation effort relative to Washington. They can’t run deficits, since most are required to balance their budgets. And, they can’t just print money like the Federal Reserve Board.
As a result, the range of action for state and local policymakers is limited to what they can pay for. With the recession sharply curtailing revenue, that doesn’t leave much money for inventive job-creating agendas. These governments can raise taxes, but there is a limit to how much taxes can be increased without sending business into neighboring states, even if the political will exists.
However, there is one tax that state and local governments can raise without fear of losing businesses or people. They can tax vacant properties.
This is an especially desirable tax in the current economic situation since the real estate bubble created a glut of both residential and non-residential property in much of the country. Having housing units or commercial properties sit idle does no one any good. People could be living in the housing units and the commercial properties could offer new jobs in stores and offices.
The problem is that property owners often have difficulty coming to grips with the new market environment. They saw the run-up in prices of the bubble years and they expect that these prices will soon return. Rather than accept a lower price to sell or rent their vacant properties, they are waiting for prices to return to their bubble peak.
As a result, these pie-in-the-sky property owners are holding property that returns them no income. And, the whole economy suffers as a result of not deriving any value from these idle structures.
A vacant property tax would help these property owners to see reality. By providing an additional incentive to actually use vacant property this tax can both raise a substantial sum of money and bring down the cost of renting housing and commercial property.
Suppose properties that are vacant for a substantial period of time were assessed a tax of 1 percent of their assessed value. (One advantage of this tax is that we already have an assessed value on the books for almost every property in the country.) The value of the nationwide residential housing stock is over $16 trillion. In the most recent quarter, almost 11 percent of this property, or $1.8 trillion was reported vacant on a year-round basis.
If this property were taxed at just a 1 percent rate, it could raise $18 billion a year. If a comparable amount was raised from taxing vacant commercial properties, the sum would be $36 billion a year. Of course there would be large variations by state. The states that have been hardest hit by the downturn would stand to raise the most from such a tax.
Unlike most taxes, all the side effects from this tax are positive. If property owners don’t want to pay the tax, then they can just rent out their property. Or they may sell the property off to someone else who actually plans to use it. Either outcome would push down residential and commercial rents.
In some cases property owners may not be able to pay the tax and simply give up the property. That is unfortunate, but it is better that the property be in the hands of someone who can use it productively than have it just sit idle.
Lower rents could provide a big boost to living standards. For middle-income families, rents are often more than 40 percent of income. If rent fell by 10 percent this would be equivalent to a 4 percent increase in wages. Lower commercial rents will mean more stores and other businesses (think of it like a tax cut).
This route would be especially desirable in eurozone countries like Spain and Greece where it is necessary to reduce large trade deficits. Since there are on the euro, these countries lack the most obvious mechanism for fixing a trade deficit: devaluing the currency.
The route being pushed by the European Central Bank and the IMF is to have these countries experience an internal devaluation where wages and prices fall to the point where competitiveness is restored. This is likely to be a long and painful process.
However this process could be made much less painful if rents fell sharply. This would substantially reduce the cost of living for workers in these countries, possibly allowing them to see rising real wages even if their nominal wages remained stagnant or fell slightly.
This is a tax without a serious downside. When you tax something, you expect to get less of whatever it is you are taxing. In this case we are taxing nothing – valuable property being left idle. We want less of that.
The tax is easy to collect and it encourages people to do what we want them to do. It might even be possible to get politicians to consider it.
This article was originally posted at Center For Economic and Policy Research
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ABOUT Dean Baker
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is the author of several books, including Plunder & Blunder: The Rise and Fall of the Bubble Economy, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer and The United States Since 1980. He was the editor of Getting Prices Right: The Debate Over the Consumer Price Index, which was a winner of a Choice Book Award as one of the outstanding academic books of the year. He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio. His blog, Beat the Press, features commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in economics from the University of Michigan.
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25 comments on "Taxing Nothing: Make Owners of Vacant Property Pay"
October 11, 2011 1:44pm
This man gives some very inciteful comments on what's going on.
October 11, 2011 8:35am
If this man is what passes for an Economist in this nation, it's no wonder we're in the straights we are. Win Win...he's either stupid or myopic that he can't see past his own rosy glow. His 1% of value on a 250K house would be be an extra 2500 on top of the existing property tax..Many people are struggling to hang on to what they have now, and are forced to live away to find work, have property they can't reasonably sell. His suggestion if they can't make this additional burden..sieze their assets as obviously the government will know better how to manage things than the owner..Banks..burdened down with assets that if dumped onto the market would devalue the property market further, and the resultant losses crash more banks. Awesome..maybe we can all afford another round of bank bailouts! Rents, yes let's flood the markets with properties..I'm sure there's so much fat in the rental market that dropping the prices dramatically will have no ill effects on the nations rental stocks..who needs rentals to be maintained properly..who does he think will pay to have all of these empty properties brought up to standards for the current rental requirements. Win Win...oh yes...I absolutely see that....
October 10, 2011 8:20am
Most of the vacant property that I look at is owned by Banks. Do you think they will agree to pay this vacant tax? I think not.
October 10, 2011 4:55am
Don't know if you've read about this - but the Banks are doing just fine. Banks issued bad loans on purpose, and were a key factor in driving up housing costs.As to your friends who bought rental property, (as we are currently discussing vacant rental property) - it sounds to me that they would be better off renting it out than just sitting on it.
October 08, 2011 8:26pm
Bad idea -- I can only think of my neighbor who has 'done the right thing' -- he bought his house 10 years ago, has seen the house value drop below what he owes, and he has been transferred to the opposite side of the country. Our HOA prohibits renting, and he can't afford to sell. Rather than walking away from responsibility, he continues to pay his mortgage and comes home periodically to do maintenance. I'm grateful that he has not just walked away and let his house become one more foreclosure. Many of those who are hanging on to empty property are already loosing enough. No need to punish them further.
October 09, 2011 9:10am
Agreed George...All I could think of was, those owners will at some point get them rented. They like the business sector cannot keep their money idle forever because it makes them nothing when it is not in use. If we could just get the banks to clear their books by helping folks to refinance, some of the vacant would fill up.
October 08, 2011 8:16pm
Everybody wins? Does the owner of the house who lost the value of his/her investment when Fannie/Freddie went belly up win? Did he/she lose his job and then the house because of this president's job-killing policies win? And the bank who must now eat the lost value of the loan which will never be repaid. Do they win? And the bank customers who are charged higher fees to cover bad loans, do they win, too?
October 08, 2011 6:23pm
A friend of mine with very low income occupies a house in foreclosure. The bank allows her as she keeps the place up and the lights on. Her presence also keeps the vandals away. A representative from the bank comes by every serveral months and checks up on things, very respectfully and friendly and actually thanks her for being there. Everybody wins, but that is Hawaii.
October 08, 2011 8:17pm
Everybody wins? Does the owner of the house who lost the value of his/her investment when Fannie/Freddie went belly up win? Did he/she lose his job and then the house because of this president's job-killing policies win? And the bank who must now eat the lost value of the loan which will never be repaid. Do they win? And the bank customers who are charged higher fees to cover bad loans, do they win, too?
October 08, 2011 5:36pm
many things are not fair, i had rentals too in miami and had to sell it at loss cause rental didnt pay off and keep the ones in NY that are making money. there are always options, sell it short sell it or demolish it...or rent it for a dollar to a homelss and avoid the tax and deduct it from your taxes.... everyone winsonly thing i know is that if we dont agree on something things aint going to get pretty.
October 08, 2011 5:22pm
Being a rental property owner, I see a different side. I do not have any property vacant, but on behalf of those who do have it, there are many reasons why it cannot be changed. Code upgrades may cost too much to comply with, rezoning may have rendered many properties inappropriate for usage, the area may have become a slum, and vandalism may have caused too much damage to fix, the building could have been condemned pending pricey fixing, the property could be tied up in probate, or has been foreclosed on, or left to heirs who have no interest in the land, and cannot sell it due to it's location or condition, etc. Most property owners would like an income stream from the property. That is why they bought it, unless they were going to flip it for a higher price and got caught in the slamming door of the real estate bubble. However, not all, and I daresay most property owners are not "wealthy." Far from it. Due to the economy, commercial building owners have been unable to rent out their buildings, so they have sat vacant. Residential property owners may be out of state, and children or relatives who inherited it. They may not have the money to pay someone to manage it upfront, in addition to any repairs, which can be in the thousands. For laws to be passed that make requirements not in existence when something was purchased, is not fair. To force property into usage or "punish" the owner if it is not done, is similar to the gov't announcing that anyone owning a car must drive it or be taxed. And "tax" in this instance is just another word for "penalized." How legal is it for the federal or state government to pass a penalty forcing usage of personal property? This is especially ludicrous at a time when small and medium business owners are struggling to stay open. Commercial business sites lie empty everywhere, and there is nothing anyone can do about it. Why punish those who have done nothing wrong, would love to rent out their properties, but can"t due to factors outside their control? It's extortion. And it should be illegal. If governments overspent and now are broke, let them figure out a way that doesn't punish those who are just trying to survive. It's just another way of squeezing the American public for every last nickel.
October 08, 2011 4:40pm
Re: rent to son-in-law for $1
Sounds good as long as it isn't vacant! If the son-in-law leaves it empty, well, there's still that tax. I love the idea of this tax.
But on the other hand, "properties that are vacant for a substantial period of time were assessed a tax" -- perhaps the owner only needs to make it lived in one week a year, and he can rotate through 52 properties in a year. May be a new job title: rotating occupant. Even this loop-hole would help the community since at least once a year someone is keeping the property from being a total dump.
October 08, 2011 2:32pm
They want government to fail, so they can go in and buy up America at firesale prices. They want even more tentacles around wealth. The wealthy 1% have over more than half of the worlds money. Now they want our property.
October 08, 2011 6:45pm
You might be onto something, Shirley. Private property is the cornerstone of our legal rights as persons in this country. Now that companies have been gifted the status of person hood, there's nothing to say that a large bank couldn't funnel giant sums of money to a real estate investment fund to by large swaths of foreclosed land and housing. It's a scary thought, but the legal possibility exists for large multinationals to buy up 99% of the housing in this country and force the rest of us to rent in perpetuity. It'd be an enormous feet, and would cost an enormous sum of money to do it, but given the amount of wealth these groups control, and the ability of industry to surmount almost any obstacle to achieve what they want, it could be conceivable. The key I think is the firesale prices you mention. This country would have to be utterly destroyed economically for this to happen. Given the way things are going, it's conceivable that the right circumstances could exist in the next century for something like this to happen. Of course, they'll always have to keep around 50% of the country satisfied with the status quo, so as long as enough people could be placated by the system to defend it, they'd only have to make ownership of real estate either affordable, or completely unattractive to a small segment of the population to keep the machine humming.
October 08, 2011 2:10pm
Passive wealth? Are you another idiot on this site? You're just mad because you're a loser who never owned anything.
October 08, 2011 1:59pm
Since when is vacant property not taxed? I pay taxes on my property regardless of whether it is occupied or not. I have a feeling the writer of this piece has never owned property other than a house maybe. This seems like one more effort to steal from people who put up the money to build and buy properties and and have already taken it in the shorts. I think this is probably one of the most stupid articles I have ever read. We are being f%ck8d by Wall street and Washington.....and nobody gets prosecuted. Why don't we address the real problems in this country and not try to solve them on the backs of people who got caught in the financial trap created by Wall St and Washington. Idiots like this should just go away. Bastille day is looming larger and larger.
October 10, 2011 4:56am
If you have rental property, why are you leaving it vacant for substantial periods of time?
October 08, 2011 1:27pm
DC has a vacant property tax and a higher blighted vacant property tax. It has been in effect for a year and it will be interesting to see how much vacant property get into use. The property pictured looks like a property on Mass ave NW which has changed hands and is undergoing renovation. A problem in DC is that some of the vacant properties are owned by Churches and are tax exempt. Another problem is that an exemption is granted if the owner claims to be selling or attempting to rent. some people trying to buy or especially rent find they can't reach the advertised selling agent. DC with a 2 % rental vacancy rate should be perfect for this
October 08, 2011 1:27pm
DC has a vacant property tax and a higher blighted vacant property tax. It has been in effect for a year and it will be interesting to see how much vacant property get into use. The property pictured looks like a property on Mass ave NW which has changed hands and is undergoing renovation. A problem in DC is that some of the vacant properties are owned by Churches and are tax exempt. Another problem is that an exemption is granted if the owner claims to be selling or attempting to rent. some people trying to buy or especially rent find they can't reach the advertised selling agent. DC with a 2 % rental vacancy rate should be perfect for this
October 08, 2011 1:26pm
DC has a vacant property tax and a higher blighted vacant property tax. It has been in effect for a year and it will be interesting to see how much vacant property get into use. The property pictured looks like a property on Mass ave NW which has changed hands and is undergoing renovation. A problem in DC is that some of the vacant properties are owned by Churches and are tax exempt. Another problem is that an exemption is granted if the owner claims to be selling or attempting to rent. some people trying to buy or especially rent find they can't reach the advertised selling agent. DC with a 2 % rental vacancy rate should be perfect for this
October 08, 2011 1:09pm
Great Idea! It's an excellent way to tax passive wealth and provides a reason to put the property wealth to work. Also it would be a individual state tax program over which the feds wouldn't easily interfere with.
October 08, 2011 12:21pm
so if i have vacant property i just rent it to my son in law for$1 month
October 08, 2011 6:26pm
Or you may exercise compassion and provide someone who could not otherwise afford shelter a home.
Yes, that is exactly what the article is saying. Lower rents, however, the caveat is that your son-in-law will have to actually move into the property. Otherwise it would still be considered vacant. No wander innovation is hard to come by in America today. Knee jerk reactions instead of proactive solutions.
October 08, 2011 12:13pm
Brilliant idea: a win-win situation for everyone and society. What was not mentioned also is that the property tax laws, with all the deductions and write-offs, mean that landlords are often rewarded or at least compensated for property purposefully kept vacant until they can con someone into purchasing or renting at their inflated dreams. However, you can bet the republicans will not be for this. They want America to fail just to be vindictive and show up Obama, and don't care who suffers just to achieve their own selfish goals of power and greed. And after all, they didn't think of it, can't take it away from the poor or working class, so the party of "No," will do anything to oppose or obstruct it. Just watch.