Ep. 111: Land Value Tax Would Fix This with Lars Doucet (Incentives Series pt. 11)

We close out the Incentives Series with Lars Doucet offering a primer on land value taxes, the ultimate incentive-aligned housing policy. This is part 11 of our series on misaligned incentives in housing policy.

Show notes:

• Doucet, L. (2025). Land value return is needed, pragmatic, and achievable. Progress and Poverty [Substack].
  Doucet, L. (2025). Enacting Land Value Return in Your Hometown. Progress and Poverty [Substack].
• Doucet, L. (2025). So You Want to Abolish Property Taxes. Progress and Poverty [Substack].
• Doucet, L. (2025). Mass Appraisal For The Masses: The Basics. Progress and Poverty [Substack].

Transcript

Shane Phillips 00:00:05
Hello! This is the UCLA Housing Voice podcast and I'm your host, Shane Phillips. 

This is episode 11 in our ongoing Incentives Series supported by UCLA's Center for Incentive Design. Throughout this series, we've been exploring the misalignment between what we say we want our policies and processes to achieve, the behaviors and outcomes they actually incentivize, and potential solutions. 

This is also the last episode in the series and we're going out on the holy grail of aligned incentive policies — the land value tax. We had actually intended to publish this as a two-parter on land value taxes, but unfortunately we had problems with the recording quality of the first episode and we didn't feel like it was up to the standards of our listeners or of ourselves, and so we had to scrap that one. But we are going to do our best to bring back that first guest for another topic before too long. This is a long episode and I've got other things to share in this intro. 

So, on the subject of land value taxes, I will just say that they accomplish a lot of positive things in a neat and tidy package. They reward rather than punish people for building more housing. They punish rather than reward property owners who speculate on land and keep it unimproved or under-improved to the detriment of their neighbors. And they can raise a lot of money progressively without encouraging the kind of avoidance behaviors we heard about in our episode on Measure ULA and real estate transfer taxes more generally. They're also much too rare for all the benefits they offer, and our guest in this episode, Lars Doucet, is laser focused on changing that. 

To say a bit about the Incentives Series as a whole, we have covered a lot of ground, jumping from building codes to mortgage policy to taxes. If those of you who have been following along listening have learned even half as much as I did prepping for these conversations and talking to our guests, then I would say it was time well spent. One thing we have heard again and again is that most of the incentive problems in housing are not intentional. They happen when we aren't paying close enough attention or when our attention is too narrowly focused and we end up creating policies or revising existing ones in ways that lead to unintended consequences. The nice thing about unintended consequences is that a lot of the time they don't have much of a constituency, so if you can bring them into the light, there are probably plenty of people who would like to see them fixed. And that is where you all come in. I hope to take all these wonky conversations and do something with them in the real world in your own communities. Thank you again for following along on this journey. 

The Housing Voice podcast is a production of the UCLA Lewis Center for Regional Policy Studies, with production support from Claudia Bustamante, Brett Berndt and Tiffany Lieu. If you like this series and want to hear more like it, send us your ideas for the next one. If your organization is in a position to support the show financially, well, that is even better, because I have some ideas of my own and we cannot do this work without partners like the Center for Incentive Design that made this series possible. You can reach me at shanephillips@ucla.edu. I'm also on Bluesky and LinkedIn and you can follow the show and share your thoughts on our Substack, uclahousingvoice.substack.com. 

One other quick note for any folks in the LA area: on May 18th, the Lewis Center is hosting our annual Interactions Symposium, where we're bringing in practitioners and policymakers from outside California to learn about successful efforts in housing and transportation and how we might import those ideas here. In fact, one of our guests will be Andre Jones from episode 101 as part of the Incentives Series. If you'd like to attend, tickets are available now at our website, lewis.ucla.edu. They are not expensive and they are limited, so get your ticket soon if you're interested. The date for that again is May 18th and it's taking place in downtown Los Angeles. 

With that, let's get to our conversation with Lars Doucet. 

Lars Doucet is co-founder of the Center for Land Economics and author of Land is a Big Deal. Lars, thanks for joining us and welcome to the Housing Voice podcast.

Lars Doucet 00:04:44
Pleasure to be here. Thanks for inviting me.

Shane Phillips 00:04:45
We always start off by asking our guests for a tour of a place that they know well, that they want to share with our audience. So is there anywhere you want to take us? That's perfect.

Lars Doucet 00:04:53
It's kind of a weird sort of out of the way place. So my mom is from Norway. She became a Pan Am flight attendant when she was young and she was the first of her siblings to really leave the country. And she came to America. She married my father and she would take me back there most summers when I was young. And so technically, Norwegian is my first language. I learned English when I was like three, so it's kind of a meaningless technicality, but I spent a lot of time over there in the same village that she grew up, and that village is a tiny little village that's not on most maps. It's called Selva and it's this tiny little, just coastal village on the Trondheimsfjord. It's super small. Until — I don't know exactly which decade — it was inaccessible except by boat. So there's a whole coastal dialect all along that part of Norway where your dialect has more in common with people miles and miles and miles away from you, as long as they're still on the coast, versus people who are like half a mile inland or something like that, you know, well.

Shane Phillips 00:06:00
No way to get there.

Lars Doucet 00:06:01
Until recently. Right now they've dynamited through the mountains and can drive along that coast, right. And so now, you know, I'll fly into the airport in Trondheim and you'll go along that road and it has this winding road. It's right along the coast and everything's just wiggly because it's Norwegian fjords, right. To get there, the transit system to get there is Norway's more car dependent than a lot of people realize. To kind of get there it's like you get on a bus, you hop on a ferry, it's like this kind of convoluted system to get to this like super out of the way place. It's a really cozy little town, you know, just kind of little bedroom community. But like I remember taking my kids there one summer and they were just like astounded by the fact that there was a store that you could walk to in this like extremely rural, just absolute ultra remote Norwegian town. And Norway is not. Norway is no Amsterdam, Norway is. You know, it's nice in a lot of ways but it's not. Like I would not call Norway like the not just bikes kind of fetish place because it's actually quite car dependent in a lot of ways. But my kids were just agog that there was this like little general store where you could just walk to and buy some milk, you know, without having to cross like three highways and get run over like here in Texas. And it's just. It's like kind of little village out in the middle of nowhere. It's hardly like I would hold up as like an ideal of urbanism or something, but it's just a place that I grew up climbing trees and running around in the fields— and all my family is from there basically, and it was just a really nice little place.

Shane Phillips 00:07:38
And it probably grew up before cars, right.

Lars Doucet 00:07:42
I mean, like I said, accessible only by boat, right. My mom grew up without electricity. I'm an elder millennial. My mom had kids late, so she's from that like eldest sector of the boomer generation. And Norway had electricity by this point, but she grew up without electricity in this remote place. They had indoor plumbing when she was born, but not electricity, and they worked fields with hand tools, and now it's like completely transformed. Now, of course, you know, everyone has electric cars and everything like that, but it's just a really interesting little place, right.

Shane Phillips 00:08:13
Well, that sounds awesome, and it's surprisingly common in rural places, right, to see that kind of main street environment. And I think it's maybe a little bit different if people have farms and they kind of necessarily have to be spread out. But if you either have a, you know, smaller farming community or just like are more dependent on fishing or other industries, there's not a need to spread out, and so people are just naturally going to kind of cohabitate closer together than you see in a more kind of car oriented place.

Lars Doucet 00:08:46
Norway's weird because it's not flat. It's not flat kind of like Sweden and Denmark are more flat. Norway is just mountains everywhere, right.

Shane Phillips 00:08:56
It's like jagged vertically and horizontally.

Lars Doucet 00:08:59
So you can only basically live like in these areas around the coast, right, and in the fjords. So it's kind of like both effects at the same time. It like spreads everybody out into these tiny, like little valleys and like pockets and fjords, so like concentrates people, but also like spreads them out, right, because you can't live in most of the square meterage of the actual country, so you're just like packed in like sardines.

Shane Phillips 00:09:25
It's a mountain ridge essentially, yeah.

Lars Doucet 00:09:25
And so the Norwegians are kind of pushed towards seafaring and that kind of coastal environment a lot. I mean, there are inland Norwegians and stuff and that's why we have 40,000,000 different regional dialects, so it's kind of an interesting effect. Rural takes on a little different character there and, like I said, it's more car dependent than people realize, just because basically everywhere is kind of remote.

Shane Phillips 00:09:48
So, getting into the topic here, this is our final episode of the Incentives Series and, along with the previous episode, we're going to be closing things out on the subject of land value taxes, a tax that was devised with incentives very much in mind. We're talking with Lars, because he's been working at the Center for Land Economics to advance land taxes from where they stand today, which is a great idea popularized 150 years ago but rarely implemented into an actually widespread practice that is solving real problems in communities across the US and maybe beyond. The question that always comes up — the one that I always have myself, really — is that if land value taxes are so great — raising money, incentivizing good things like building more housing, discouraging bad things like land speculation — then why are they not more commonplace? So I wanted to be sure that we spent some time on implementation from one of the folks working to make land taxes more of a day to day reality and who's providing a lot of the message framing and technological tools that others are using and relying on. Having said that, Lars, let me hand it over to you to say more about what the Center for Land Economics is all about and what you guys have been up to the past year and a half or two years you've been in operation.

Lars Doucet 00:11:07
So really the mission of the Center for Land Economics is to get stuff done, is to take this cool theory from cool theory to land. We want to change what people are annoyed by. Right now everyone is annoyed by online land value tax advocates who just think this is a great idea and keep saying land value tax would fix this. We want to change them being annoyed by us being like reply guys in their comments to being annoyed by everyone knows this is a good idea and we're already implementing it, already ready. So shut up about it now. So you know we want to move from first they laugh at you, then they fight you, then you win. You know we want to get them to be like everyone knows this is great and we're doing it already. So shut up, you know. So that's where we intend to move things and we're just like kind of ruthlessly pragmatic. We take the idea from just kind of the halls of theory to actually going out and doing the math, answering all the objections that people have, because most, most objections people have are imaginary. First of all, they have misconceptions about what the policy is, what it's going to do, and half of that is messaging and half of that is just people imagining consequences. Well, the cool things about consequences is you can model them, because the policies are very simple. You can put them on a map, you can quantify them down to the parcel, down to the taxpayer, and be like, well, I'll tell you exactly who will win and who will lose. And so then that gives me the power to — okay, who is my audience? What is their objection? Well, they're coming at it from this perspective and they're afraid it's going to do this. I can show them that, even within their value system, that this is a good idea. And then I just basically create templates for making those kinds of arguments. I do elected officials' homework for them, which is an underrated theory of change, and then I show other people how to do that, so I can make myself redundant. And we take the show on the road and the proof's kind of in the pudding. You were saying earlier, it's just kind of like, you know, why is this not being done more? Yesterday we just had a nice win in the state of Kentucky. Louisville has a bill — was just passed through the Kentucky state legislature yesterday over the governor's veto, with a veto-proof majority, that now enables the metro area of Louisville, Kentucky to implement a split rate land value tax if they want. And that was the direct result of one of our activists using our playbook. And so we think this is not just a great little win for itself, but it's proof that our method works. And it wasn't this big knockdown drag out fight, it was just like: approach a local elected official, do the homework, sounds like a cool idea, let's write a bill, let's put it in this thing. Well, look at that, it passed. And then just move on from there. People work themselves up about how big a fight this is going to be, and I think if you just kind of qualify the areas that are the most interested in this and work there first, don't try to pick a fight with the biggest hard cases. Just find someone who's like, yeah, that sounds reasonable, and just work with them.

Shane Phillips 00:14:05
Maybe we'll come back to this, but it does feel like I fall into this trap as well, partly because property taxes seem like such — certainly the state has a big role to play in what is allowed, what is not allowed, what you actually can do at the local level. But that does not mean necessarily that you have to change your whole state's property tax system. It sounds like what you're talking about in Kentucky is you did have to get the state to sign on to letting other cities like Louisville or metro areas try different things, but that does not require you convincing the whole state that this is something that needs to happen and that they should adopt this right away. It's something you can kind of test at a smaller scale, which is not necessarily intuitive.

Lars Doucet 00:14:49
What we found is that there's ideological and practical reasons to take our approach. Right, and our approach, to be clear, is basically kind of bottom up and basically not asking for: okay, we're going to blanket, just paint the entire state with this new revolutionary system. Instead, we're like, we would like you to allow cities — only cities that want this and are asking for it — to have a little more flexibility in how they arrange their local property tax system. Nobody's going to force anybody to do this, and you're not going to force any cities to do this either. It's only cities that can already show that they have mustered the political will and their own constituents want this. Then just, can we just let them, right? And the idea is it's like: okay, well, if you're skeptical this is a good idea, why not just let people who want to do this do this? And then, if it's a good idea, it'll prove itself on the merits and then you can worry about scaling it up later.

Shane Phillips 00:15:41
This sounds kind of like the argument for zoning reform, actually.

Lars Doucet 00:15:45
Well, yeah, I mean right.

Shane Phillips 00:15:46
Like, if single family homes are so popular, you don't have to mandate them, right?

Lars Doucet 00:15:50
If people only want single family homes, then why do you have to ban anything else, right? You know what I mean. So we very much have copied the YIMBY playbook. We have Jeff Fong of YIMBY Action on our board, also Andrew Burleson of Strong Towns, so we see ourselves as kind of the intersection of the two movements, kind of the synthesis of the top down versus bottom up, kind of bifurcation of the housing movement. But yeah, no, we've also just found that if you just focus on pragmatism and don't hit people with your big long-winded ideological speech, just be like we just want to make some pragmatic reforms. The other opening is that all other existing property tax reform is hitting a predictable wall, including the big populist, like abolished property tax energy. I'm from Texas where they've tried this multiple times. They always run into a wall, and so what's happening is that we're in kind of a dangerous but beautiful political moment, and it is when the politician's fallacy is raging. And the politician's fallacy is: something must be done. This is something, therefore, this.

Shane Phillips 00:16:58
This must be done, yeah.

Lars Doucet 00:16:58
Must be done. When something must be done, be the something, you know, and when all the other somethings have been tried and failed, that is your opportunity and that is our opportunity right now is: everyone wants to do something about property tax reform and all the other ideas are bad, and we're the only people who have an actual good idea and are willing to do an outrageous amount of homework that can de-risk the idea for nervous and skittish politicians. And then we are crafting our message in a way to be as inoffensive and harmless and just like: why don't you just let people try things kind of way, and it seems like it's bearing fruit so far, and we're just going to keep throwing spaghetti at the wall, figuring out what works and evolving our strategy until we can just be like Bruce Lee, be like water, just seep into all the cracks. You know what I mean, okay?

Shane Phillips 00:17:44
So I noticed one of your videos and blog posts had this kind of call to action that land value taxes are needed. They're pragmatic and they're achievable. I hear the pragmatic part of this. I hear the achievable part. I'd like to hear from you why you think land value taxes are needed. And maybe, as part of this question, you can also talk about why you often refer to them not as land value taxes but as land value return tax.

Lars Doucet 00:18:11
So I mean, I guess we'll hit it from the end of that question. So land value return. So that's something we've talked about recently, is that there's a lot of times where you can say exactly what you mean to someone and you will fail to communicate because they will just latch onto certain keywords you've said and completely misunderstand what you're talking about. You know what I mean.

Shane Phillips 00:18:32
Tax being one of those words. 

Lars Doucet 00:18:32
And tax is one of those words, you know, because everyone has these preconceived notions about what taxes are for and why people want to tax, right. And so the minute you say that word, they round you off to a preconceived understanding and they just like stop listening. And so when you say land value tax, people get all kinds of misconceptions. One: they think it's a land area tax, that you're going to tax land by the acre and that you're really out to destroy farmers. And what they don't understand is that most of the land value is concentrated in the urban inner cities, often exponentially so. And honestly, I could give a fig about all the farmland value. Right, it's quite low value, it's quite rural and I really don't care about making farmers' lives more difficult. Why would I want to do that? What I want to do is recapture the billions of dollars of land value that's locked up under surface parking lots in our urban downtowns. But that's kind of a mouthful to explain all at once. And so land value return is a phrase where it's not immediately obvious what it means and it invites someone. I mean, first of all we did a little message testing and it message tested the best, but second, it invites people to be like: what do you mean by that? And then I can explain what I actually mean. And the other part is that what it means is that where does land get its value? Right? The realtors give it away: location, location, location. And why are locations valuable? It's because of the people that are around them. And so when you build a business, when you build a house, a lot of the value will come from the structure that you build, but the value of the site itself comes from everything that's around it. And so why is it possible that there can be a surface parking lot downtown in almost any American city and you go and we have a little app that actually like, shows this. You can just like, click on the surface parking lots downtown and it will show you that they're worth a million, $2,500,000. What is creating that value? That value is created by the entire city, by the entire economic activity of that city. Yet that surface parking lot is getting all that value for free and they're going to sit on it and they're not going to sell for a decade, maybe more, because that value is going to increase and then, when they flip it for a couple millions of dollars, when they bought it, like 20, 30 years ago, for $200,000. Exactly what are we rewarding them for? We're rewarding them for holding that site hostage and for basically pushing all that demand out, right. When demand cannot be built in the city, it sprawls outward, that causes gentrification, that annoys NIMBYs in the suburbs. It does all this stuff.

Shane Phillips 00:21:14
That investment that made it so valuable. They just get to keep for themselves a lot of the value that was created and—

Lars Doucet 00:21:20
All of the municipal services, all of the amenities, all of the private and public investment. So it's not just the public services, it's that too, but it's also all the private investment. Any business knows you want to put your business in a good location, which is a place with a lot of foot traffic that's caused by stuff that everyone else is doing. And the problem is that private capture of that land value is a zero-sum game, and it's one of the worst zero-sum games in our economy. And basically land value return wants to fix things so that private investment receives the reward of private investment and the public receives the reward of public investment and social investment. So the problem is that if I can just basically get to the Monopoly board first, I can kind of extract value from everybody else without doing anything. And we basically want to restore the spirit of capitalism, which is that if you work hard and you invest, you should receive rewards proportional to that private investment. But then we want a level playing field. We don't want the world to revert to a feudal system where the people who get to the land first are able to extract value from everyone else. The other problem is that— and this might get into a question we need to save a little bit for later— is that America's fundamental problem is that it is a country with a frontier mindset but no longer has a frontier. Our entire housing policy, our entire economy is based on this notion that there will always be free land available in the frontier. And we were able to basically play this game twice: first with westward expansion and second with the invention of the automobile, which is what fueled basically the home ownership movement of the post-war period, where everyone could basically count on cheap land, where my parents and their parents were able to basically homestead for basically nothing and then just count on their homes increasing in value forever.

Shane Phillips 00:23:20
Really the land increasing in value forever. Yeah.

Lars Doucet 00:23:20
Which is really the land increasing in value when the home is not getting any nicer or more maintained. And the problem with this is it's a game you can only play once, which is why this movement is coming back to life now, because we've now reached the end of that frontier. And Europe went through this too, because they got bombed a heck in World War II and then the automobile went over there too, and you had this post-war expansion period that kind of ended around 2006, and since then we've just had this big crunch. And so when people are wondering where all these old ideas are getting resurrected, why the urbanism movement is coming to life, it's because material conditions have changed. It ain't your daddy's, you know, housing market anymore. You have an entire generation that feels like they're never gonna buy a house and everyone else is like: well, just pull yourself up by your bootstraps and save, like I did. It's like, yeah, but you bought a house for a nickel and a Tootsie Roll and I'm basically not going to be able to start a family until my 40s is the problem that the next generation is talking about. 

Lars Doucet 00:24:20
Anyway, a lot of stuff covered there, but that's kind of the basic pitch. And land value return is basically: you provide the value of your improvements and your hard work and your investment. You should be able to recapture all of that. We're completely OK with that. But the value of the land is value society has created and that should just go back to society and that's the idea, right.

Shane Phillips 00:24:40
Read this quote, the Henry George quote. "It is the taking by the community for, or the use of the community, of that value, which is the creation of the community," is just a good summation of that. But, to your point, it's not just the taking of that value, but actually essentially the returning back in the funding of services and infrastructure and other things that you can use that money for, rather than it just being some fortunate person's windfall.

Lars Doucet 00:25:05
Well, if you think about it, it's like: okay, what are all the services that are provided to you on a specific location? Say, you're renting out a site and you're like, okay, well, why is it valuable? Well, it's got fire coverage, it's got police coverage, it's got streets. But then also there's all these private businesses around it that are providing me with foot traffic. Someone's providing housing over there which is providing my customers, other people providing jobs, which are the people who come out and come to my restaurant for lunch. So who should I pay my rent check to? Shouldn't I pay it to all these people? Oh, wait, no, I'm paying it to some guy who lives in Florida, out of state. You know what I mean. Like, what? How exactly did he provide all these things? He just put up a gate and bottlenecked this location. And now we're sending money out of the community to some guy who lives out of state, you know, just because he got there first 20 years ago. And anyway, it's also useful to talk about what land value return is. Not like a lot of people say what your thing is. It's also important to say what it's not. One of the chief rival ideologies to this movement was, in fact, Marxism, which stood in opposition to it, because Marxism is all about complete socialization of everything — seizes the means of production, seizes private capital and this whole notion of centrally planning the economy. Whereas our movement is very different from that, because we only want to share the value of land. We want everything else to stay private. And in fact, if we had our druthers, we would reduce a lot of other taxes, particularly the income tax, because that's the capture of your labor. And the fundamental difference is that we see the world, we see the factors of production as three. The three things that come together to produce value is land, labor, and capital. And mainstream ideologies, even if they give lip service to land, labor, capital, they really see everything as labor and capital. They see land as just another species of capital.

Shane Phillips 00:26:55
I was going to say that this kind of summary, that view of the world, does actually sound pretty similar to Marxism. But it's really just the labor and capital side of things, yeah.

Lars Doucet 00:27:05
But Marxism and neoclassical capitalism kind of basically agree that the world is just labor and capital. They just like disagree about—

Shane Phillips 00:27:14
What to do about it. 

Lars Doucet 00:27:15
Who should be on top. And our philosophy is like: what you call capital is really land and capital. The thing about capital is it depreciates and you can make more of it. Those two things are not true about land, and that allows you to use it. And by land we also mean natural resources and natural monopolies, but also just like locations and control over, like, for instance, the moon. Let's say the moon becomes economically valuable in the future. Does the first person to get there get to own it for the next thousand years? Is that like a fair and efficient? I don't think so. Right, yeah.

Shane Phillips 00:27:50
I think that was maybe our country's thinking in 1969. But I don't think that's the right approach.

Lars Doucet 00:27:55
Like, I do think that there should be a reward to encourage people to go out and like pioneer and stuff, but I don't think that they should be able to like basically set up a permanent empire because their great, great, great, great grandfather got there first, absolutely.

Shane Phillips 00:28:10
Sort of like the idea — again just tying this to other topics — kind of sounds like a little bit like the argument around intellectual property. Like you should have some kind of copyright, some kind of protection for some period of time, but once you're getting into permanent, you know, no one can ever use this without paying you royalties. A thousand years into the future, even 50 or 75 years in the future, is probably too long for many of these things. It's a similar argument. 

Lars Doucet 00:28:39
Used to last for 14 years, with an optional renewal for another 14. And now it lasts more than a human lifetime, and at that point it might as well be eternal, and at that point it's just clear: rent-seeking. And our philosophy is basically just anti-rent-seeking in all of its forms, and its largest form is in the seeking of land rent specifically, and we are looking to recapture the land rent for society in general. And that's basically the philosophy in a nutshell. But honestly, we barely even talk about this when we're doing our policy reforms. We're just like, hey, everyone's angry about property taxes. We could reform them this way and guess what? We would push the tax burden onto vacant land in the center of the city. The biggest loser would be parking lots where nobody lives. A lot of those vacant lots are owned by people who don't even live in the state. They're the worst kind of land speculators. Single family homes: under a lot of our revenue-neutral land value tax shift models, single family homes often even come out slightly ahead. So this like notion that we're going to like nuke the suburbs is just false.

Shane Phillips 00:29:45
Inner suburbs maybe, but we'll get to that yeah.

Lars Doucet 00:29:49
If you've got a single family home in the middle of the central business district, you're going to pay some more taxes, and also you're probably a multimillionaire, so I don't feel sorry for you.

Shane Phillips 00:29:53
Well, before we get too far into land taxes or land return, I did want to kind of step back here because I want to talk about property taxes more generally, because actually that's how I first came across your writing. Back in September of last year you wrote a post on the Center for Land Economics substack, Progress and Poverty, which is titled "So You Want to Abolish Property Taxes." And this is a response to efforts in Republican-led states, specifically I think in Texas, to do exactly that. And you grabbed my attention with the subtitle which just says "How to Not Turn Your Red State into California." It is a long post. It has a lot of great stuff in there, but I want to have you talk about three parts of it in particular. So one is how red states tend to rely much more on property taxes than blue states like California or Hawaii. Two is how property taxes rate compared to other taxes in terms of both public opinion and distortions in behavior or unintended consequences, and you started to kind of talk about this with income taxes and so forth. And three leads into this is some of the consequences of shifting your tax base away from property taxes toward other sources like income or sales taxes. And that's a lot, but these are all sort of related. And I think this is important because the case for land value taxes or land value return is, I think, easier to grasp once you understand some of the advantage of property taxes generally over other kinds of revenue sources.

Lars Doucet 00:31:29
So okay, the first one: you said how red states tend to rely more on property taxes. It's actually kind of ironic that red states rail so much against property taxes because they rely on them more than blue states. The most anti-property tax states in practice tend to be blue states, and that is because blue states are much more comfortable with all other forms of taxes, so they have alternatives. They will have state income taxes, they will have high state sales taxes, they will have lots of other taxes. They will have impact fees. Blue states generally are much more like tax-loving in general, which means that they have not abolished every single tax they could get their hands on, leaving them with nothing but property taxes, which is the case in most red states. Most red states have just aggressively eliminated so many other avenues, but their people will not tolerate just completely unfunded local governments, and so you will wind up with basically just property taxes, and that is very much the case in states like Texas and, to a certain degree, Florida. What's interesting about the dynamic this creates is that you also have to understand that I hate it when people talk about the state. It's like when people talk about the church, you know, in the year 2026. It's like which the church, you know, like I can't even count the number of Protestant denominations, and there was this thing called the Great Schism. So like which the state. In your state there are two layers of government. There is the state government and there is the local government. There's a lot of local governments in Texas. We're so like anti-government that every local government function gets spun out as a completely independent, sovereign local entity that is under no one's jurisdiction but its own, whereas in other places they're like nesting Matryoshka dolls under the county in the city or whatever, right. So people deeply misunderstand the factional interplay here. It's often important to realize that a lot of state governments will not collect property taxes. Property taxes usually — not always, but usually — is a purely local government tax, and so there is an opportunity, therefore, for state governments to grandstand and say: I'm against property taxes. It's easy to say you're against them when they're not part of your budget. They're part of someone else's budget, and the consequences for you don't really matter, because your state is funded by sales tax or oil and gas severance taxes or whatever. It's easy to cut someone else's budget. So that's the main reason in Republican states is that there's this illusory opposition. Not everyone's of one mind, even the Republicans. It's just the state level, local officials grandstanding generously offering to cut someone else's budget.

Shane Phillips 00:34:12
It's the one tax left to cut.

Lars Doucet 00:34:14
But ironically it means it's impossible to cut because you have nothing to replace it with. In a blue state, you could credibly say: well, we're just going to raise the income tax, or we're just going to have a billionaire tax. We're going to do something, we're going to tax, tax, tax and get rid of this other tax, whereas in Republican states it's like: okay, we're going to abolish the property tax or replace it with like a 20% sales tax, and then it's dead in the water.

Shane Phillips 00:34:38
So the second part of this is the popularity of property taxes, because I've certainly always felt like, you know, property taxes and gas taxes, two of the least popular taxes, the ones that are always getting attacked, no matter who you are. But you make a case that's not really true, or at least when you compare it to other taxes, property taxes actually come out looking pretty good to most people, or to more people.

Lars Doucet 00:35:00
This is the problem of imagining things and not measuring them, right? So a lot of people first of all think it's like I'm a typical person, I hate property taxes. It's like, okay, well, you're a homeowner, right, you know what I mean. It's like, yes, most Americans are homeowners, but not all Americans, and a significant chunk are not homeowners and do not pay property taxes, and so those people don't necessarily hate them. But even among that, there has been a net 20-point swing in favor of property taxes over the last 20 years, right? If you look at some Gallup polling, which I included in that article, the most hated tax now is any form of income tax, and federal income tax is the single most hated. So even on a line item basis, federal income tax is more hated than property tax, and you had a net 20-point swing between those two over the last 20 years, which is what I've been talking about. Changing material conditions, like maybe once upon a time, 20 years ago, property taxes were the most hated, but now it's federal income tax, possibly.

Shane Phillips 00:35:55
I will say I would guess that a good chunk of that is essentially just the federal government part, and if there was, like, a federal property tax, that might be even more hated than any of it. It doesn't really change this, because property taxes are at some level inherently a pretty local phenomenon and maybe that's part of their strength actually. 

Lars Doucet 00:36:16
But part of the thing is that same poll also had a couple other taxes in it in the running for what is your least favorite, and they were both other forms of income tax. Social Security tax was put out separately from federal income tax, which I don't think like most people just kind of bundle those together, and then local income tax. And the disfavorability of both those other forms of income taxes also increased over the years. And it's kind of a weird poll, kind of like asking what's your favorite flavor of ice cream? Is it chocolate, strawberry, or French vanilla, homemade vanilla, vanilla bean? So if you include all the vanillas, all the income taxes, then it's even more stark that any income tax is by far the least popular. But forget about what people say, look at what people do. And this, I think, is the most telling. Because if you go by revealed preferences — not what people say they like or hate, but what they will actually politically tolerate and prefer — then in our democratic system across the 50 United States there is not a single U.S. state that does not have some form of a property tax. Yes, some of them have like deeply undermined them and like made them very inequitable, like California and Hawaii, but there is still something on the books, and that is not the case for any other class of taxes, whether it's sales, whether it's income, whether it's corporate tax. There are large swaths of the country, many, many states, that have no form of that tax at all.

Shane Phillips 00:37:41
This is something I had not really considered before, like I'm aware that other places don't have an income tax or don't have a sales tax or whatever, but I did not think about kind of the corollary to that, actually everywhere does have a property tax of some sort.

Lars Doucet 00:37:54
I have like a map there. It's like here's a handy chart of states by color of like who has a property tax. And like I just paint them all the same color. And the legend says literally all of them.

Shane Phillips 00:38:03
All of them. Yeah, and there's just this broader point. There's the distortive aspect of it. Right, like with income, it's just a lot easier to. It's not easy necessarily in every case, but it is a lot easier to do things like changing where you live, changing the job you have, moving your business, buying different things to avoid income taxes and corporate taxes and sales taxes. A lot harder to actually like move your home and your whole family and life to avoid a property tax, and I guess, especially when everyone has one. But that's kind of beside the point, I think.

Lars Doucet 00:38:37
You cannot take your land to the Caymans, right? That is kind of the virtue of the real estate, of any real estate tax. Did you want to now talk about the consequences of undermining your property tax system? So the states that have undermined their property tax systems the worst include states like California, New York, Hawaii, each doing it in different ways. California and New York still have like non-zero property tax rates. They're just very inequitable because politicians start playing this game of just giving carve-out votes to favored groups, and they make the system more and more complicated over time. And so California is probably the best example. It's Prop 13. And it was this big tax revolt. They were just like, okay, we're going to freeze property valuations at 1976. They can only increase like 2% a year, and then the all-in tax rate can't exceed 1%. Sounds great, except for like two provisions that really, really change how you understand this thing: property values reset on sale to full market value, and two, this was pitched as being for homeowners, but it's actually for all real estate. So your commercial landlord gets it too, and your parking lot owner gets it too, and in fact, vacant land — if you track the increase in value of real estate in California over time versus what the Prop 13 cap allows it to be, the single largest recipient was vacant landowners, right.

Shane Phillips 00:40:09
Which makes sense, because the whole value was the land, and so any appreciation is going to be purely on that basis versus anything with improvements, like the improvements are actually depreciating, and so they're kind of offsetting a little bit.

Lars Doucet 00:40:23
And it gets worse because, like the largest beneficiaries, homeowners were actually like, were like the second or third worst beneficiary of this. Like all the tax giveaways, the biggest tax giveaways were to non-residential properties. And the biggest problem with it is that it's essentially a tax on anyone moving in. It basically — I am not exaggerating — establishes a class of landed, a gentry in California, because you can also inherit your tax advantage. And so what it means is that someone will buy a house and you will have two identical houses right next to each other and they will both be worth on the market. They could both sell on the market for like, I don't know, a couple million dollars, but one of them will be taxed as if it's worth like 50,000. And the other will be taxed as if it's worth a couple million dollars. And so, side by side, tax rates can differ by 10x. So really, the problem with all property tax reform is it's like squeezing on a balloon. People don't understand that when you exempt property from taxation, from property taxation, you're just squeezing the tax burden elsewhere. Because the way property taxes work is they look at the total tax base, then they pick a budget number of money they want to raise and then they just solve for X to get the tax rate. They work it out backwards. You see what I mean.

Shane Phillips 00:41:39
In most places. Yeah, that's not how it works in California now, but yeah.

Lars Doucet 00:41:40
In most places, not all places. And then you've got that 1% tax cap and you've got all these other problems, but you do still have that relative effect because they're still collecting property taxes. And so what's going to happen is that the tax burden just shifts entirely to anyone who buys more recently, who does not have that frozen valuation. They're going to pay closer to full freight than everybody else. And this effect gets worse over time. In 1977 and 1978, 1979, 1980, the effects were very small, but over time these property tax caps basically create two tiers of people: the bluebloods who have been here forever, and then the unwashed peasants who came here recently. And the natural effect of this is that you just chase young working families out of your state. The benefits go to the old and the landed and the benefits are extracted from the young and the landless. And the natural effect is those people move out of your state and they move to states like Texas and Florida from California, and then California loses representation in the next census and Texas and Florida gain it. And I think basically California kind of wins by default and it's California's game to lose, and they have been doing their best to do that and it's kind of sad to see.

Shane Phillips 00:43:00
Land value taxes are not particularly commonplace, but they do exist and have existed in a few places. So we've been talking about property taxes and, as we transition into really the meat of this on land value taxes, I'm curious to hear what we know about cities or states that have adopted land value taxes, or other countries, if it's really relevant. But from the recent past, even to the present day, what has been done and what have we really learned from those experiences? 

Lars Doucet 00:43:29
So we have some good. We have two sets of experiences in land value taxes that have been done: ones that have been done basically like 100 years ago and ones that have been done recently. The ones that have been done recently have been more modest, but that's more recent evidence. So we should look to that. And the best examples of that have all been done in Pennsylvania. And these were fairly modest land value taxes. They weren't pure land value taxes, they were split rate property taxes, where there's just a higher rate of taxation on land and buildings. And the evidence from them is quite positive. They had all the predicted effects that you expect. You had a lot more developments. You had more infill. The demand got sucked in towards the center of the city, taking development pressure off of the outside. You had more permits. You had more buildings, more affordable housing. You had all the things we traditionally expect. If you go back 100 years ago, you actually do have some more bolder claims, but also the evidence is 100 years old and people are more naturally skeptical of that. But you have things like: the colonial German colony of Tsingtao in China was funded- not entirely, but mostly- off of a pure land value tax. And it was quite successful. It really bootstrapped itself off of just a pure land value tax. And the experiment was only ended when the Japanese empire conquered it. So advice there is: if you have a land value tax experiment, don't get conquered. And then, additionally, Houston had a not quite land value tax but a very aggressive split rate under JJ Pastoriza. It only lasted a couple of years before the Supreme Court shut them down, but the evidence from that was quite positive. And then Lawson Purdy in New York. There's almost this like archaeological strata you can see in the New York skyline of all the buildings that were built during Lawson Purdy's property tax abatement, building abatement on new construction- that any new construction would not have to pay as much taxes on the building component of their property tax. And there was a huge building boom in New York where, like a lot of buildings that everyone takes for granted in New York, came from that particular surge. You can look at the graph and it's like boom Lawson Purdy.

Shane Phillips 00:45:32
When was that? What time period? 

Lars Doucet 00:45:33
I forget the exact. It was early 1900s, maybe it was before the 50s, so sometime between the 20s and 30s, I think. I can't remember it offhand. And then the Pennsylvania experience are the most recent and they've been quite successful. And our goal is to get more wins on the board, to generate more evidence. And then, if and when the results are good, we brag about those and spin the spiral upwards.

Shane Phillips 00:45:56
So getting into land value return a little more deeply, you have another Substack post from December which is titled "Enacting Land Value Return in Your Hometown." I think this is a good scaffolding for a lot of what I want to talk about. This post is sort of an introduction to what it takes to make land value return a reality from a local advocate's perspective, starting with finding an elected official who can serve as the political champion. After finding someone willing to take on that role, you talk about how the advocate's role is basically to do the politician's homework for them, so they can make a convincing case to others, turn the idea into real policy. They just don't have the time to take on this thing that they maybe have never even heard of and do all that research themselves. And what that homework really looks like is, you talk about five steps, and those are coalition building, finding stories to tell, legal analysis, overall strategy, and data modeling. Not to diminish their importance, but coalition building and storytelling I think are pretty self explanatory. So I'm just going to jump ahead to the last three, and I'm going to do it a little out of order, and to start here with overall strategy. You're really talking about four different approaches to taxing land. So could you just give us a quick overview on each of those, what those look like?

Lars Doucet 00:47:13
So first of all, land value return. Another reason we use land value return is not just to avoid the word tax, but because there are different ways of achieving the same goal. One of the ways to achieve land value return is, if you have an existing property tax, you can just pass a universal building exemption. Not only is this a friendlier phrase that politicians are more likely to like, because everyone hates taxes, everyone loves exemptions — it's also a unique legal strategy, because you might not have the authority to do a split rate property tax or a land value tax, but you might have the legal authority to just pass an exemption. Property taxes are chock full of exemptions, so why not an exemption on just all the building value? And if you can do that, you have a nice rhetorical approach and a solid legal strategy. So universal building exemption is just: we're going to have a property tax, but we're just going to exempt the building value and collect the same amount of money. So that's universal building exemption. Split rate is the other approach, and split rate property tax is where you simply have a higher rate of tax on land than on buildings, and so the building tax does not go to zero, but it might be like two to one or four to one in favor of land. The other one you can do is municipal land leasing. Local governments and state governments sometimes own land and they'll often just put it in land banks and just like auction it for like nothing. And it's like you could just lease that land out and allow the owner of the lease to build whatever they wanted on it, but just charge them a ground rent. And that would be equivalent to a land value tax economically, as long as someone had property rights on the leasehold. But they just charged you a ground rent for the privilege, you know, rather than just selling these assets out the door for nothing. So the fourth one is basically LVT by district. And this is basically where you take any of these approaches and you just carve out specific districts and be like we're just going to do it here. A good example is this ongoing project in New York with IBX.

Shane Phillips 00:49:08
That's the inter-borough expressway from Brooklyn to Queens, I think.

Lars Doucet 00:49:10
Believe so. Yes, and the idea is that when you build transit, the land value around the transit goes up in value, and so it might be too controversial. You don't have the political capital to get like full land value return, full land value capture, across the whole city or the whole state, but you could be like, what about just around the transit lines? And in fact this is actually how Asian countries fund all their transit. So we're talking about previous examples. A lot of Asian countries will basically have a form of land value return or land value capture right around their transit lines, and then transit just pays for itself. Because you build the transit, the land around it gets more valuable, and then either you lease out the land around the stations to like retail shops or you charge a ground rent or a tax on it, and then that just perpetually pays for the transit because that land becomes higher demand.

Shane Phillips 00:49:59
I think, to date, at least in the US, the split rate approach is probably the most popular or most commonplace. Although that depends on how you interpret the exemption one, because there are, as you said, many, many exemptions. Many places have, like, a homestead exemption for owner occupiers. And here in California that's like a $7,000 exemption, which is meaningless. But I think in Texas it's like $150,000 or something like that. And other places have proposed increasing that, which effectively eliminates the property tax for some owners. But you started to talk about the legal analysis, which is one of these other steps in the context of the universal building exemption. So this comes before the strategy selection in your list, since the legal analysis is going to determine which strategies are actually viable or available, depending where you live. So tell us what people are looking for when they do this analysis, and maybe a little bit about what you've learned about the barriers to adopting a land value tax somewhere like Illinois versus Texas versus Washington state, where it's actually likely a different approach in all these different states.

Lars Doucet 00:51:09
So it's really just problem solving and working backwards, like what stands between you and victory. You need to decide whether you're going to work within the law or whether you're going to charge for it and try to get the law changed. So a good example is in Texas. There was an LVT experiment in Houston in the 1910s. It got overturned by the Supreme Court, and so unfortunately, we have a precedent-setting Supreme Court ruling that says that the state constitution forbids land value tax. So in Texas you're not getting anywhere until you reform the state constitution. Now people in other states are like: oh, it's impossible, and don't realize that in Texas we amend the constitution like all the time. It's like the third branch of the legislature, you know. So it's just like, I mean, our constitution is just this massive, super long thing. We passed like 14 constitutional amendments, like this past session. You know we do it all the time, but that is what you would have to do in other states. A good example is it's like: okay, well, it doesn't look like LVT is like straight up, like, or split rate is straight up legal, but actually, essentially we already have existing constitutional authority to define a new class and we only need uniformity of taxation across classes. Usually it means like residential or commercial, right. But it's like what if you just define a class as just land versus building? You know, what if buildings are a class? I believe someone in Oklahoma — I can't remember if that was the exact state — was like kind of bummed and then we asked them to like look at their state constitution. They discovered they could define a new class, and so that might be a strategy they can pursue. In other places, you might already have authority to do this, but you need to just go pass an ordinance locally or something like that. And so it's just really knowing like what is the legal bottleneck that's preventing you, and then figure out whether you can work within it, whether you have to work around it, or whether you do have to just go to the legislature and amend your constitution or pass a state enabling law. But usually all roads kind of lead to the same place of getting the state to clarify that anyone who wants to do this is allowed to do this. And that's usually easiest if you have someone local who's asking to do it. Right, because if you go to the state and ask them to enable someone to do it, they're like, well, who's asking for this? And to kind of like scaffold this whole thing, Jackson Arnold, who is one of our local activists, was able to go through this whole process in Louisville, Kentucky, to get that bill passed. So he basically went through all of these steps, found a local champion, got the enablement, and is now proceeding through this whole journey.

Shane Phillips 00:53:42
And, to be clear, since we're based in California, California is the most challenging place in the country, probably, to adopt this, right? Because of Prop 13, essentially.

Lars Doucet 00:53:54
California is the final boss. 

Shane Phillips 00:53:55
Sad to say.

Lars Doucet 00:53:57
Are doing the reps and like leveling up and grinding it out and all the easier states. But this is another part of the thing — is that it's like for an organization like ours we have a succeed anywhere strategy, which is a little bit different of how do I succeed where I'm from, because you're only from one place and if you're from a place that's particularly difficult, like, we'll try to help you but you might be kind of cooked for a while, you know. But hopefully by building momentum in the other places, we can work on the places where it's easiest to get the reforms and then those can give courage to places in the places that it's harder.

Shane Phillips 00:54:32
Show us what we're missing out on so that, you know, the constitutional amendment we would have to make here, which is not as common and actually has to come from the voters and not the legislature, could be possible.

Lars Doucet 00:54:42
I think ultimately Prop 13's internal contradictions will eventually create material contradictions that will eventually force change. But it might be a long, long time and hopefully we can provide all these useful looking alternatives and de-risk them in other states. That will eventually make them enticing to Californians. Yes.

Shane Phillips 00:54:59
All right. So the last one on your list is data modeling, which is right up our alley at the Lewis Center. I think it's kind of your specialty as well at the Center for Land Economics. This is where advocates have the opportunity to address some of the biggest concerns that you hear anytime a shift to land value tax is proposed, which is how current property owners will be affected, and especially homeowners. People want to know if a land value tax means higher taxes for them. And this is where I want to introduce an analysis you did for the city of Spokane, Washington. As I understand it, you guys have done others since then, but this can serve as a sort of case study for us. We can start with the 3D model that you created showing where land value is concentrated in the city. This is something that seems to be a real priority for you guys, to the point where you've even created some free, publicly accessible tools — GIS tools — that advocates can use to create similar maps for their own cities. So tell us why you think these maps are an important starting point for local land value tax return advocacy and, you know, feel free to share a little bit about the tools themselves in case any of our listeners want to give them a try.

Lars Doucet 00:56:09
So, the problem is that people have wildly incorrect intuitions and you can't tell people anything, like you can't explain in a bunch of words that really we have a monocentric city model with their urban environments and agglomeration effects and all the value concentration to the central. You know what I mean. Like they don't get it.

Shane Phillips 00:56:28
Really taking aim at the purpose of this podcast. 

Lars Doucet 00:56:31
What you do is that you show them a map with a big giant spike in the middle and say: that's where all the land value is, dude. And then you show them a map of how much of that astronomical land value is sitting under parking lots. And then they get it. They just get it. I just slap people upside the face with bar graphs and 3D visualizations - here's where all the land value is - because everyone's like: well, all the land value is under my house. Right, you're after me, I just know it. And then you're like: here's your house in the suburbs. Notice that the bar is much smaller here. 

Shane Phillips 00:57:05
That the bar is basically the ground. It's not a visible third dimension at all.

Lars Doucet 00:57:10
And then here is yeah, and then here is downtown, and notice that this is a giant towering like tower eye of Sauron. Just it's just like, yeah, tower of Babel, straight into the heavens, you know, just daring God to strike it down. And people get it. They're like: oh, I'll play a game with people. It's like: how much more valuable do you think land in the city center is than in the suburbs? I did this in one particular city and someone was like I don't know, 2X, 3X, 4.. And I'm like: try 10, try 15.. So once you start with that, they're like: wow, people get a sense of the magnitudes at play that there's so much land value downtown. And then I'm like: and downtown is precisely where we're building the least. And this means things. This means that if we shift the tax base to the giant purple tower of land value and off of the tiny shire of land value, more of the taxes will be on the giant purple tower than on the tiny green shire. And where do you live? Do you live in the giant purple tower? Do you live in the tiny green shire? And they're like: oh well, I get it now. And then we can quantify that per parcel. And then we can aggregate that per category. And we can be like: here is what the median single family home will pay after the shift. They will save 100 bucks. Mrs. Jorgensen, at 243 Applewood Drive, would you like to save 135 bucks or not? So many people are like: well, land value tax will destroy single-family homes and you need to pass it with, like a homestead exemption. It's like universal building exemption is better for most homeowners than a homestead exemption. It's not better for the single-family home that is on Times Square. No, but we should want those taxes to increase and you're probably not that home. You know what I mean. And then we just show: the biggest losers are parking lots and stuff like that. Like you can't tell people anything, you got to show them. And then, once you do that up front, then they're like: tell me more, explain why. And then you hit them with the rest of your pitch and you put on your pocket protector and you go: well, agglomeration affects them...

Shane Phillips 00:59:18
Well, yeah, so let's talk a little bit more about who pays more and who pays less under different taxation scenarios, and we could just focus on what you looked at in the Spokane analysis, or at least what you emphasized in the slides that I saw, which is the universal building abatement, which is different from a full exemption. So what is the tax policy there and what do you find in terms of how it shifts tax liabilities across different kinds of land uses and property owners?

Lars Doucet 00:59:46
And so the universal building abatement in Spokane is basically us just kind of contorting around the local regulations. Ideally we would like to just have something like simple and clean. But here the specific policy in Spokane is a $50,000 just base exemption on the building value, applied only to the building value, with the 50% exemption stacked on top of whatever's left, almost like a homestead exemption, but only for your improvement and it's universal, it's not just for homesteads — and then 50% of what's left. So if you have a $150,000 improvement now it's $50,000 off the top, it's $100,000 and then you chop another 50 off. So you're only taxed on $50,000 off of $150,000. And that's just trying to work around our legal restrictions that we've got. The main thing that we find from this shift is that the single largest loser is vacant lots. Who on the median vacant land parcel has a 46% increase in their tax burden? Parking lots specifically, it's 42%. And then every other class, the median case is that they save. And your savings go up with the density of your building. So the median single-family home basically saves $158, about 5%. A small multifamily, like a duplex, is going to save like $270, 7%. Large multifamily — five units or more — is going to save like 8%. And then we also like provide breakdowns within each class. There are winners and losers, but there's over twice as many single-family homes that save money. Only a small fraction increase. And overall, like 91% of them, their taxes don't change by even 10%. Right, so it's mostly neutral on single-family homes. And then, of the ones that change, most of them save. And then what's really important is to look at the progressivity effects, right. A lot of people like to say that, like, property taxes are like super regressive and stuff like that. But this shift makes them more progressive. If you measure it by census block group, median income and then look at, you know, who saves and who wins, the poor areas tend to save more. And so a lot of people are like, oh, land value tax will like lead to gentrification or stuff. It's like it's anti-gentrification, man. The poorest neighborhoods save the most. And then in the Spokane model, actually it's not like the highest group was being punished either. They just saved a little less. In certain cities they will pay more, but in this city, like every census block paid a little less within the residential group, but the poorest areas saved the most.

Shane Phillips 01:02:15
I think it will. It will sort of depend on how badly you've done your zoning in the past. Like if you have what we have in Los Angeles, which is, you know, $10,000,000 mansions in the center of the city, in Hancock Park, those are going to see their taxes go up dramatically because that land is worth so much money and it's only valued as low as it is, despite these very high values, because it is restricted to single family homes. Most places — I mean everywhere's got a lot of single family zoning, but most places don't have actually the urban central land values that Los Angeles does, and so it's going to be, I think, a little bit more of — again, maybe this is a reason that California and Los Angeles are our final bosses as well. It's just it's so inequitable that some people really will pay a lot more and some of them will be sympathetic people, even if most of them could easily afford it and are multimillionaires.

Lars Doucet 01:03:13
Well, I'd be curious about that. I would not say for sure until I've run the math, because I keep being surprised. With land values that high, the downtown values have got to be astronomical, and so it's all about what that grading is. Usually the pattern I've seen is the more backwards and cooked your urban environment is, the more politically convenient the numbers from the shift turn out — not universally so, but generally speaking, like the more downtown is covered in low rise parking lots, the more just everyone who's not there comes out ahead, regardless of what is built in the outlying areas.

Shane Phillips 01:03:45
And those parking lots almost by definition in California especially, but I think really in most places, are paying very low property taxes. In California, way below the 1% rate, because it would just not make any sense to keep it as a parking lot if you were paying the actual full freight 1% property tax on land that is worth $20,000,000. You just couldn't operate it as a parking lot, you'd have to sell it or redevelop it, and so that actually creates an opportunity where you're going to gain a lot from taxing those based on their land value, and that's going to take a lot of the pressure off of other uses that are being taxed more right now.

Lars Doucet 01:04:27
And it's what I call the lemonade stand on Times Square problem, where basically someone owns this extremely valuable land and puts an extremely low value use on it. And what they're hoping to do even is like get it assessed with an income approach and basically say, look how little money I'm making off of this. I'm so poor, it's worth nothing, don't tax me. But then when they get a private appraisal for a loan, they want it to be huge. 

Shane Phillips 01:04:52
Of course, I wanted to talk about something that I've really only heard you talk about, which is the role of assessors and property valuation. So what is your case for making friends with county assessors? I guess maybe explain for folks what an assessor does and why we should care about property valuation methods if we want to see land value return in our communities.

Lars Doucet 01:05:16
So assessors. The assessor is the person who values your property. They are not the person who taxes your property or decides how much you pay in tax, but they are the person who gets the blame, and I feel that this has to be politically intentional. The way it works is that the assessor determines what your property is worth. They do not do this with, as people imagine, black magic and voodoo. They do this using, at least in the good jurisdictions, verifiable statistical methods, mass appraisal, and their job is just fact finding. Their job is to go out and just put a value on every house that is supported by the sales evidence and then report that back to the powers that be, which are usually your elected officials, and this is different in every state. The powers that be do not have the power to say what the property is worth. This is the problem with people saying the state. This is another one of those divisions. The assessor has the power to value but not to tax. The taxing entities, which is usually city council or county government or city government elected officials, they have the power to set the tax rate but not the power to set values. In most places, and this is a good separation of powers, because it means that people can't raise your values just because they want to get more taxes out of you, right?

Shane Phillips 01:06:32
This is something Mike Manville has brought up about. One of the reasons people tend not to like property taxes is the government is setting both the rate and the base, the base being the value. And you're making the point here that, like it is the government, quote unquote, but it's not the same entity within the government doing both.

Lars Doucet 01:06:49
There is separation of powers and there is pressure in both directions, and Texas actually has a pretty good system. Like I said, we spin out all of our local governments into single purpose districts instead of them all being under the same authority. So like if you have the counties in charge of the assessor and in charge of the tax rate, you could say that there's like some crossing of streams there, and that's the case in some states. In Texas, the central appraisal district is a fully sovereign local government unit that answers to no one but its own board, which is drawn from various other taxing entities, but it only has the job of setting value and it is not part of the county at all. Then you have all of the local government entities, which are also fully sovereign local governments, that answer to no one but their own board and the voters, such as the school district, the county, the city, the water district, the community college district. You got a district, we get a district. Look under your chair, there's a district. And they will each get to set a millage rate against their budget to collect their budget from that tax base that the assessor sets. Now there is a political function set up by the separation of powers, which is that the elected official gets to stand up on his hickory stump and say, my fellow red-blooded Texans, I done the Christian thing and I haven't raised that millage rate in 10 years. But that mean old property tax assessor, he raised your tax rates as the law requires. He didn't raise your tax rates, he raised your values to market value. And so you go on and send your death threats to him. I'm just turning on my Texas accent there. And it's just like it is this: the guy who is setting your tax, the guy who is raising your taxes, is redirecting your blame to the one person who has the least power to do anything about your taxes. You know what's going to happen if they don't set your value at market value? They're going to get fired. They're going to fail the comptroller's property value study that the state pushes down on them. Your local county is going to lose its school funding because their ratio study is under where it should be. That's where they test that they're at market value. And so there's this glorious permission structure that, like, I feel so cynical about, that is set up that way now—

Shane Phillips 01:08:57
I could feel it.

Lars Doucet 01:08:57
And assessors — assessors are human beings. There's good ones and there's bad ones — but they do a kind of thankless job. They get literally chased off of properties with guns and dogs and nobody likes them. They get all the blame and it's not a really glamorous profession. I call it the blue collar, white collar career. There's also no official pipeline for it. They call it the accidental profession. People just kind of wind up there, but it's actually — there is a local assessor in basically almost every county in the United States. It's incredibly geographically distributed and because it's geographically distributed, it's one of the most diverse occupations in like a really meaningful meaning of diversity, that they just have like a cross-section of America working those jobs — and this is where everything gets paid from — is these valuations allow us to have property taxes, which allows us to have libraries, have schools, have everything. And here's the thing you start messing with: property taxes. Who's got to implement your new convoluted, weird formula? You know, with this exemption and this thing and this carve out and this, that — it's the assessor. They're the ones who have to crank that lever. And if they don't like it, sometimes they have a pocket veto. And if you go in on your high horse, not understanding what they actually do, and you see them as an obstacle in your way in that, and then you just heap more blame on them, they can just sit back, testify to the legislature and say: this is going to take a $50,000,000 fiscal note, we're going to have to change all our software, it's going to make everything more complicated, we don't want to do it. I've seen so many property tax reforms — ones I like and ones I don't like — fail because they did not talk to the assessor first. And it is such an own goal. The assessor is not your enemy and you don't have to make them your enemy. Yet so many people choose to make them their enemy, out of nothing other than complete ignorance. And this is not to say that every assessor is a saint, that there are not assessors who ever do a bad job. I can point you to such cases. I've called them out myself. But if you actually have respect for their jobs, you can get your reforms through. Also, if we just make the assessors better at their jobs — they're always underfunded, they're always understaffed, they're always begging for more resources and more staff and more training and more support — if they get better at their jobs and the assessments are just closer to actual market value, you get closer to the effects that we want. There is a higher effective tax rate on land, yes, and buildings too, but also on land. And the property taxes get less inequitable without us having to change any laws, just by improving the technical skills of the assessors who are already hired. And then, if you work with them and you provide them with free, open source software — that's an alternative to their locked in monopolistic vendors — and you go to their conferences and you share your expertise with them and you learn from them and you make friends with them, and then your friends get hired by their jurisdictions and you talk to them all day in Discord channels and you just know these people. Then, when you have a reform you want to pass and the assessors won't have an opinion about it, they're like, oh, that was Lars's idea. Oh, I know Lars, he's not my enemy, he doesn't want to make my life harder. And then maybe, you know, when they call up the local assessor, they're not going to be like, yeah, this is a terrible idea, don't do it.

Shane Phillips 01:12:13
I did not expect this to become a tax assessor apologist podcast, but here we are. Can you say a little bit, though just quickly, about the challenges of assessing land, like what is different about assessing land values or property values when you have a land value tax? Because I don't think that's obvious. And what little I do know about assessment practices, which mostly comes from what I see in California, and in Los Angeles in particular, where there's actually not a lot of valuation happening because it's all just based on the sale price, is here at least, the land values seem kind of arbitrary. It's just like a percentage of the total property value rather than an actual measure where you know a vacant piece of land and the piece of land next door that has a house on it are not going to have the same land value, even though they should.

Lars Doucet 01:13:06
So I've written a whole bunch on this. You can link to those pieces, but basically I've written a series called Mass Appraisal for the Masses, which goes into mass appraisal methods. And you are looking at sales. You are not coming up with random opinions for what stuff is worth. You're basically trying to assess what unsold properties would sell for. It's the same as the Zillow estimate or the Redfin estimate, right, like, what do you think these properties are going to sell for? And usually on a fixed date called the valuation date, like January 1st of this year, what would they have sold for? Right, between buyer and seller of equal information. So if I sell a property, like my dad sells me a property for $5,000, that's not a real sale, that's a gift. And so what you're trying to do is like you're trying to predict what it would actually sell for within a tolerable error range, and you're basically just trying to extrapolate market information to stuff that hasn't sold. And then, for land specifically, you're trying to figure out what is the contribution of the building versus the land. And in theory it's like: what would this sell for if you knocked down the house and sold the lot? If you knocked down the house and sold the lot tomorrow, what would it sell for? And where the field is kind of stuck right now is that most of the standards on land valuation, I feel like, are both understudied and underpublished on. They're very dependent on vacant lot comparables, and I think this is because for improved properties that's an adequate standard. So they're just like, there's usually enough improved comps to value everything that's improved, but for the land value component they're like, well, what I really need is to find an equally permitted, equally zoned, equally sized vacant lot in this neighborhood, and there usually isn't one because it's all built out, and then people are just like, therefore land's impossible to value, and that's not true. There's jurisdictions throughout the United States that value land adequately. Well, there's a lot of methods to do it. The most popular is to basically just estimate the construction cost of the building and then apply depreciation. That's called the cost approach, and that works best for new construction. It works less well for things that are like 140 years old, where depreciation—

Shane Phillips 01:15:14
And maybe renovated, maybe not. Yeah.

Lars Doucet 01:15:16
It is true, and so I've spent the last couple years like really studying this, and what I've concluded to is that if you have adequate data, all of the conventional methods for extracting the land value, whether it's cost approach or whether it's paired sales across neighborhoods, where you have the same house in two different neighborhoods but one neighborhood is worth $200,000 more — I think that's location, location, location, you know what I mean. And then various things with looking at how things evolve over time, where you can see that the price per square foot in this neighborhood is going up over time but the buildings aren't getting any newer or any nicer. And since buildings are a depreciating asset, you can count that as land inflation. There's all these different methods. The best existence proof is South Korea that values all of the land of every parcel in the entire country every year and gets it done in five months flat, and I've written a whole article about how South Korea values land. Anyone who wants to just become world class at valuing land just needs to take a quick field trip to South Korea and talk to the Ministry of Land, Infrastructure and Transportation, MOLIT, and figure out what they do and then just bring it back. But there's also places in like North Carolina. Some of my assessor pals in Florida in certain places do a really good job. I haven't looked at the values myself but I understand that Maricopa County does a good job. You know there are places in America that value land. British Columbia separates land and improvements. Australia does it also. I did a research paper — not research paper but like a little white paper on our blog — called The Simplest Viable Method for Valuing Land, which shows that forget about platonic land value, forget about it for a second. Just from first principles, economic incentives — you could value something called like land value, which is just a proxy, which is just within an individual neighborhood. You were talking about this allocation method where basically land is valued as just like a fixed percentage of the property value. The wrong way to do that is per individual parcel, because then you're soaking the improvement value into that land valuation, right, like if there's a mansion here and there's like a shack there, 20% of either is not equitable. But if you just achieve an equitable rate per neighborhood, I show in this paper that you achieve all the incentive effects of land valuation. So if you don't have the institutional capacity to do it right through the published methods, if you just set a local land rate based off of 20% of the median value in the neighborhood and then get a fixed square footage rate and paint that uniformly, I show that you get all the incentive effects we want where your taxes don't go up if you build something and that the most expensive places pay more than the least expensive places and all the other anticipated effects of a land value tax. So you can always use the least you can do method. And then you can always do what they did a hundred years ago, which is a super crazy method that they used for 50 years, which was they just asked people what they thought the land was worth. They just got a big town hall meeting, put up a map on the back and they said, okay, what's the most valuable stretch of frontage in town? And they're like, main street from first. And they're like, okay, X. Now, what's the second most valuable stretch of frontage? And they're like, Main Street from third to fourth. And they're like, okay, relative to X, what is that? And people are like 0.95, 0.98. And they would all argue. This was called the Summers System. They used it in America for 50 years and this is how land valuation was done before computers. It was just communal consensus and it's completely wild. It's completely against everything that's intuitive today, but that's how they did it back in the day. So there's a whole variety of methods that are available. Whether you want to do wisdom of the crowds, whether you want to do the least you can do method, whether you want to do construction cost extraction, or whether you want to go on a field trip to South Korea, there's ways to do this.

Shane Phillips 01:18:53
Why not? Any opportunity.

Lars Doucet 01:18:53
And it's just a matter of how much. You know, how much Korean food you want to get expensed.

Shane Phillips 01:19:00
I mean, it is interesting- I'm going to get to our last question here in a sec- but something I had not thought about is how really, at least in a developed, mostly built out city, how important accurate valuation of improvements is to estimating the value of land, because you can't derive the value of land if you can't decide that this house is worth more than that house. To find out what's left, basically you have to estimate the value of the improvements so that whatever is left gives you the value of the land. So last question here is about the transition from a traditional property tax system- or I'm not sure traditional is the word, but the more common property tax system we have today- to a land value tax or land value return. We know how much tax is owed by each parcel or on each parcel. Right now it's pretty simple to forecast how much each would pay in the future under a different tax structure. But it is harder, I think, to manage the transition from here to there. So in your Spokane case study, the median single family homeowner pays less under the land value return scenario, the building abatement scenario, than they do right now, but 3% of them pay at least 10% more, and they're probably- I don't know- 10 or 20% who are paying more, but by a smaller amount, less than 10%. Most of them will be perfectly capable of making those payments. It's possible some will not. But even among those who can afford it, some will be showing up at City Hall. They're going to be giving their council member or state legislator a call to let them know they're unhappy about it and they plan to vote their opponent in the next election if they support the change. I know there is not just one answer to this question, but what do you see as some of the options for places to take some of the immediate sting out of adopting a land value tax, where it's maybe not this: all at once everything changes, but more of a transition? Maybe some people are grandfathered in, maybe you don't think this is a good idea, but like I'm curious how you guys are thinking about that, because I'm sure it's a question that comes up.

Lars Doucet 01:21:03
And this is part of where I say we have to try things before we over imagine our opposition. You know what I mean. Those are a lot of conventional complaints I get, but we just passed it in Kentucky. It wasn't a big deal and—

Shane Phillips 01:21:17
Well, you passed the enabling legislation, right? You haven't actually—

Lars Doucet 01:21:17
So actually the enabling legislation. But I was recently on a call — we're trying to get this passed in Colorado, where it's meeting more opposition for a lot of the reasons you say. And we interviewed one of the assessors in Pennsylvania and we're like: so what was the deal there? Do people get up in arms about this? It's like no, it's just kind of normal here. People are just kind of used to this. It's like we have the split rate. At first was like kind of weird, but then like everyone got used to it and then it just became normal and uncontroversial. And so I think there's this like kind of "have you tried trying?" aspect to this, is that the more you try trying and the less you try imagining, you can build your opposition to this big bugbear. It's like how many people are going to show up at city hall? Right, and then you should welcome that, because then you're going to learn what the objection is and then you're going to come up with an answer to the objection and then you're going to put in the reps and you're going to try again.

Shane Phillips 01:22:05
Let me ask this in a more precise way, which I think is really what I'm getting at, which is, yes, some of these concerns will be overblown, maybe even some will not come to pass. But I think there is a, there's a political value, at the very least, in being able to say: I hear that you are concerned about how this is going to be a change. And we can potentially put some policies in place that soften that transition, that make it so it's not, you know, in 2026 we have this one policy, in 2027 we have something quite different, but maybe the rate on the land portion of value is going up a little bit year over year, the rate on improvements is going down year over year, until you get to the kind of final state that you want to be at. I don't know if that's like been tried or proposed or if there's better approaches, or again, you know, totally open to the just, this is not a big enough change actually, when you look at the numbers, that you don't really need it. But I just think it's useful to think through and, at the very least, maybe have in our back pocket for like, OK, we're getting a lot of opposition here. How can we reduce the temperature a little bit?

Lars Doucet 01:23:18
Well, yeah, so again, quantify the actual opposition that shows up. But let's just bite the bullet, right, let's just bite the bullet and make me answer the question. So one of the things there is: usually don't implement it overnight. And that's not really actually for the taxpayers themselves. I mean, it is for that as well, but it's also for the assessors. This is a key piece of feedback I got from the assessors is that they need time to retrain their staff. They need time to upgrade their software, any time to update the procedures. So even if everyone's on board and you can get it to pass through city council and a bunch of people aren't going to come up and yell, you still need to get through this. Also, here's the thing: if you can — I'm not sure if this is actually legal to do in any places, but the people who get, who are the losers, even if they are a very small minority, are much more loud than the winners. But in places that don't forbid it, you could put out targeted mailers to everyone who's going to win and say: Mrs. Jorgensen, at 245 Apple Street, would you like to save 145 dollars on your property taxes? If so, please support Proposition 48.

Shane Phillips 01:24:23
Could have, if nothing else, like a political action committee or something independent of government doing that. Yeah.

Lars Doucet 01:24:29
You could do the work, you could whip the votes and you could get out there. You know, also like low salience local elections, you know, if this is going through, like, not that many people vote in them. And if everyone like points out all these like curse things about American politics and never like think about the flip side, they're like everything's just owned by special interest, doesn't that mean you should become the special interest for the thing you care about? If special interest just gets whatever they want, if that's actually true, I think the bigger point of opposition is I think we can get the split rates, the modest reforms, scaling it past that. I think that is when I have to bite this bullet a lot harder, and I think you'll be more interested in my answer to that, because it's like, okay, I did the revenue neutral split rate, but ideally I'd like to tax 100% of the recurring rental value of land, which is more like increasing the property tax rate above like 1%, and have it only be on land. Right, you know what I mean. To like a couple of percent only on land, that's a much bigger ask, and in order to pull that off, you're going to need to give people a big carrot along with the stick, and it's something I want to do anyway. And that requires that you also start abolishing things like income taxes or doing things like a citizen's dividend, which is basically like you collect the tax but then you also share it out to everybody, right? And when you do that, it's going to create a lot more — it's going to make a lot more favorable balance of winners and losers, because everyone whose tax burden is below the level of the dividend is going to net out.

Shane Phillips 01:25:59
Like that as a sort of, you know, Alaska has their permanent fund, which is from oil and gas revenues, but you know, land itself is an important resource, and so having, just like a permanent fund from land dividends essentially, is an interesting idea. 

Lars Doucet 01:26:15
That's essentially what it is. And the other thing is that oil and gas thing is very in line with our principles and is exactly what we think you should do with natural resources. What most states do with it is an atrocity. They do a dividend only for landowners. They do it to buy off property taxes, and this is what Texas does. It's like everyone gets a Texas oil and gas dividend, but only if you're a property owner. It is the natural inheritance of all Texans and it's only given to property owners like me instead of to everybody, which is what it should be given to, like Alaska does.

Shane Phillips 01:26:47
On top of the homestead exemption.

Lars Doucet 01:26:50
But yeah, to bite the bullet, I think the real key case study would be a red state or a purple state that has an existing property tax and a state income tax, because then you can make a pitch for not only shifting the taxes to land but also abolishing that state income tax. And if they've got Republicans in the legislature, they're really going to want to get there somehow because they've got Texas envy, and that's the way to do it.

Shane Phillips 01:27:13
All right, Lars, we've gone over on time, but this was super interesting. And so I appreciate you sticking it out with me. Great topic and passion to end the Incentives Series with. So really appreciate you coming on. Thanks for being on the Housing Voice podcast.

Lars Doucet 01:27:28
Thank you for inviting me. Have a great day.

Shane Phillips 01:27:34
You can find our show notes and a transcript of the episode on our website, lewis.ucla.edu. Talk with us and other listeners at uclahousingvoice.substack.com. The UCLA Lewis Center is on the socials and I'm on Bluesky and LinkedIn at @shanedphillips.