Land Value Tax (LVT)

What Is a Land Value Tax?

A land value tax is a more predictable way to tax property based solely on the value of a parcel of land and not any associated buildings. The concept of a land value tax dates back to the beginning of agrarian societies when deciding how to tax landowners fairly for the benefit of the larger community was a common social goal.

Key Takeaways

  • A land value tax (LVT) is a method of assessing property taxes that only considers the value of the land itself and related improvements, and not the structures built on the land.
  • An LVT is considered to be a more fair method of land taxation for agricultural regions where the land is productive.
  • Land value taxes are examples of ad valorem taxation and are favored by some economists since land value tends to be more stable than that of houses or other buildings.

What Is a Land Value Tax (LVT)?

Understanding the Land Value Tax

A land value tax (LVT) is intended to fairly value land, which is a finite asset with a base value that does not change as dramatically as the structures built upon the land. Fluctuations in land values are determined in great part by what happens with and around the land. For example, an acre of land in a rural setting may not contribute as much to the surrounding economy as the same sized plot in a downtown urban location, where the location might be next to a new food distribution center needing an additional loading dock.

From the earliest times, land has been seen by societies as an asset that cannot be owned by an individual in the traditional sense of ownership, but rather something to be treated as a rental passing from generation to generation. It is the human activity undertaken on a parcel of land that largely determines its overall value, and that activity is almost always linked to the wealth of the landowner, so a land value tax is viewed as a fairer basis for determining tax liability. This has led us to our modern-day system of assessing land and buildings separately for taxation purposes. 

LVT is also known as a site valuation tax, an example of an ad valorem tax. Ad Valorem is the Latin phrase meaning “according to value.” Modern examples of these are most commonly found in the municipal land assessments homeowners receive annually, in which their land is valued separately from the various buildings on their land. A homeowner can make improvements to the buildings on the land, changing the taxable value. But the land itself tends to maintain a more stable value over time. The opposite is also true in the case of a landowner who lets his buildings fall into disrepair. In this case, the overall property taxes paid to the community will be less than before, yet the land itself maintains more or less its original worth, which will be important when a potential buyer is considering their tax burden and the real value of what they are purchasing.

Deadweight Loss and the Land Value Tax

Changes in property values are largely determined by market swings and can be extremely volatile. These changes create what economists call deadweight loss, which is the measure of the loss to society at large. These losses have far-reaching adverse effects in funding the basic services any prosperous society needs, such as police, fire and rescue.

The land value tax helps mitigate these market swings by separating the more stable value of the land from the buildings in creating a manageable system for real estate taxation.

Article Sources
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  1. Lincoln Institute of Land Policy. "Assessing the Theory and Practice of Land Value Taxation," Page 2. Accessed June 17, 2020.

  2. W.J. McCluskey, Owiti A. K'Akumu, and Washington Olima, "Land Value Taxation -- Chapter One: Theoretical Basis of Land Value Taxation," Page 3. Ashgate Publishing, 2005. Accessed June 17, 2020. 

  3. Lincoln Institute of Land Policy. "Land Value Tax Holds Promise for Cash-Strapped Cities and Towns." Accessed Feb. 5, 2020.

  4. Angus Stevenson and Maurice Waite. "Concise Oxford English Dictionary," Page 18. OUP Oxford, 2011. Accessed June 17, 2020.

  5. Wisconsin Department of Revenue. "2020 Property Assessment Process Guide for Municipal Officers," Page 33-34. Accessed June 17, 2020.

  6. Tax Foundation. "Reviewing the Deadweight Loss Effects of High Tax Rates." Accessed Feb. 5, 2020.