It Just Might Work: Surtax on fallow properties

by Jordan Green

We’ve all seen the weed-choked lot cordoned off by a chain to prevent people from parking, or the vacant, dormant building in the midst of otherwise flourishing downtowns.

The owners of these properties are free riders and speculators who would rather let others lead the way on reinvestment. Instead, they want to wait until the market reaches its peak and sell at maximum profit, or alternately develop vacant lots and renovate old buildings only when they know they can lease their space to small businesses at a premium.

That’s not to say every property owner with vacant lots or dormant buildings is a deadbeat. The old Traders Chevrolet next for NewBridge Bank Park in Greensboro was slated to be redeveloped as a mixed-use project around 2007-08, but the recession undercut the market. The Jones brothers, who own the property, have since constructed the impressive Greenway at Fisher Park and Greenway at Stadium Park apartments, filling out a key area of downtown’s northwest corner, adding tax revenue and bringing more residents downtown who create additional demand for dining, entertainment and other services.

So maybe we need a cap on property speculation, say 15 or 20 years; the exact number can be negotiated. In any case, it’s time for a rational tax policy that balances private property rights with public welfare. Properties in the central business district that remain unutilized are a drag on the local economy. Hoarding by speculators suppresses entrepreneurial creativity, prevents new businesses from opening and puts the brakes on local hiring.

The appropriate public-policy tool to incentivize redevelopment would be a surtax on properties that remain unutilized. If, after a certain period of time, no building permits have been issued for a particular unutilized property or there is no record in the county tax office of improvements, then the surtax would kick in. Wishing to avoid the added tax liability, the investor would be incentivized to either sell the property to someone with vision and moxie who can make the adequate investment to return the property to active use.

As a historical parallel, consider the land-reform debates during North Carolina’s Reconstruction period after the Civil War: Deprived of slave labor, plantation owners could no longer afford to cultivate vast tracts of land. Meanwhile, the multitude of black freed slaves and poor whites were eager to till the soil to gain self-sufficiency and full participation as citizens. A surtax on fallow agricultural land would have incentivized plantation owners to sell off their holdings. The era saw the birth of black colleges to train freed people in agricultural and technical trades (NC A&T, for example) across the South.

As it turned out, the post-slavery period was succeeded by an exploitative sharecropping system. Had their been adequate reparations to give ex-slaves the capital to invest in land and had the racial terror of the Ku Klux Klan been held in check by the federal government, things might have turned out differently.

Today, we’re in a new period, in which agribusiness as a driver of the state economy has been replaced by knowledge-based industries in our cities. We can’t afford for our cities to not be operating at their maximum potential.

Free the land!