Understanding Land Value Tax: An Important Route to More Housing in Minnesota
Minnesota, like much of the country, is facing a severe housing shortage. With too few homes available, everyone ends up paying more. Existing tax policies in Minnesota often reward land speculation in key areas primed for development. As a result, instead of new housing construction entire city blocks of space are taken up by unproductive land use.
We need to utilize additional tools to unlock the potential for more homes—and the Land Value Tax is a powerful tool.
So, What’s the Problem?
Our current property tax system rewards keeping land empty and discourages the development of new homes or businesses.
Today, property taxes are based on the assessed value of the buildings on the land. Building value accounts for over 80% of total value for most parcels. [2] This means that empty lots, especially those close to community amenities, workplaces and transit corridors, are often under-taxed and under-developed.
The owners of these vacant lots may hold onto them, hoping that the value will go up in the future—a practice known as land speculation. Or they may (rightly so) realize that developing the land will increase their property tax. Property owners who build homes or businesses on such lots are taxed at much higher rates, even though their investments are providing valuable resources and services to the community.
This is unfair to those who are actively contributing to our neighborhoods and it provides an obstacle to addressing our housing shortage.
What’s the Solution? A Land Value Tax
A land value tax rate is set and multiplied by the value of the land (excluding developments on the land). This shifts the focus of property taxes towards the value of the land itself, and not the value of the buildings on the land
Simply put, if you tax an empty lot as if it were a productive building (like an apartment complex), it encourages the lot to be developed to meet that tax burden, through development or sale to developers. This change encourages landowners to develop their properties, and address our housing shortage.
Our current system under taxes the value of the land (encouraging speculation) and overtaxes (disincentivizes) development. By focusing on the value of the land itself, LVT pushes landowners to either use their land productively or make it available for others to develop. This shift helps to create new homes and businesses in places where they’re needed most, leading to more vibrant, livable neighborhoods. It’s a fairer system that benefits everyone—especially those who are ready and willing to invest in our communities.
Where Has This Been Tried Before?
Land Value Tax isn’t just a theoretical idea—it’s already in use in several places. In the United States, 16 cities and two school districts in Pennsylvania have adopted a version of LVT. Internationally, places like Denmark, Estonia, Hong Kong, Singapore, New South Wales, and Mexicali have also implemented similar systems with success.
Why Don't We Have a Land Value Tax in Minnesota?
Minnesota law centralizes the regulation of property taxes at the state law. Rules for how property is classified and taxed are established under state statutes such as Minnesota Statutes §273.13.
This centralization means that local governments do not have the authority to implement alternative tax systems, such as a land value tax (LVT), without changing state law. Thus the state legislature must first amend existing laws or pass new ones that grant this authority to local governments.
Neighbors for More Neighbors Drives Progress Towards a Minnesota Land Value Tax
In 2023 Neighbors for More Neighbors advocated at the Minnesota Legislature for HF1347, a bill to change state law to allow cities to implement a land value tax by defining special land-value taxation districts. While this bill did not pass, it did progress to the conference committee stage.
You can help us make even more progress in 2024! Join our email list to receive alerts on our policy priorities so you know when to reach out to your representatives in support. You can also volunteer with us to craft policy, build engagement or lobby at the Capitol, or you can donate to support our great work.
Together, we can create enough homes for everyone.
Learn More
If you’re curious about how a Land Value Tax could work in Minnesota or want to dive deeper into the details, here are some resources:
[1]Land Value Tax, Center for Innovative Finance Support, Federal Highway Administration, U.S. Department of Transportation: https://www.fhwa.dot.gov/ipd/value_capture/defined/land_value_tax.aspx
[2] Land Value Tax, Metro Transit, 2021: https://www.metrotransit.org/Data/Sites/1/media/tod/2021_landvaluetax.pdf
[3] What Would Land Value Tax Look Like in Minnesota?, Ian Buck: streets.mn https://streets.mn/2022/12/15/what-would-land-value-tax-look-like-in-minnesota/
Written by Paul Manning, volunteer with Neighbors for More Neighbors