Route Fifty Connecting state and local government leaders
New Maryland law enables local jurisdictions to impose higher taxes on vacant properties
By Danielle J. Brown MAY 2, 2024
The legislation aims to reduce the number of lots and houses that sit vacant for years on end in an effort to solve the state’s affordable housing shortage.
This story is republished from Maryland Matters. Read the original here.
Excerpts:
Last week [April 25, 2024], Gov. Wes Moore, a Democrat, signed a host of bills into law aiming to solve the ongoing affordable housing shortage across the state. Three of the measures were part of his own priority legislation to address the issue.
House Bill 2 aims to reduce the number of lots and houses that sit vacant for years on end without any plan to develop the property into usable spaces. The bill has been championed for the last four sessions by Del. Regina T. Boyce, the vice chair of the House Environment and Transportation Committee.
At the April bill signing, Senate President Bill Ferguson highlighted the legislation as one that didn’t “get the front headlines, but really, really matter.” “What we know is that in the midst of a housing crisis, we have a number of vacant homes,” he said. “How do we increase supply? How do we take vacant homes and put them back on the roll so that we have affordable and great homes for all?”
The new law initially started as legislation just for the city of Baltimore, so that the Baltimore mayor and the city council could be authorized to issue specific tax increases on vacant and inhabitable properties. But the bill was amended by the House Ways and Means Committee to allow any local jurisdiction in the state to have the taxing authority.
Baltimore City Councilmember Odette Ramos explained that raising the taxes on vacant property could help reduce the number of abandoned houses and lots in two ways: to incentivize property owners to revitalize the lot for habitation and to make it easier for local jurisdictions to acquire the abandoned property.
“If you tax vacant and abandoned property at a higher rate, it could be an incentive for somebody who’s holding onto that property who’s not paying much tax at all because it’s not worth very much,” she told Maryland Matters. “It may be an incentive for them to finally do something with it,” she said.
Ramos noted that raising the taxes on vacant lots would also help counties and Baltimore City engage in “judicial in rem foreclosure” more quickly, so that the local governments can acquire and decide what to do with vacant properties.
“Liens” are debt on a property due to unpaid property taxes or other fees, and a city or county that has set up a judicial in rem foreclosure process can acquire an abandoned property if the value of the liens exceeds the value of the property. “When the liens exceed the value of a property with vacant properties only, the jurisdiction can foreclose. And it is a much quicker process for acquisition than any other process that Baltimore City or anywhere in the state has,” Ramos said.
Raising the property taxes on vacant property means the liens will accumulate more quickly, meaning the jurisdiction can acquire the property faster and potentially use it for other means, rather than the structure sitting vacant. The Baltimore City Department of Housing and Community Development reports that there were 13,795 vacant building notices, but the city only owns about 963 of those properties. The State Department of Assessments and Taxation reports that there are 242,361 vacant real property accounts statewide … with a total assessed value of $14.1 billion. “There’s a real opportunity here to really concentrate on blocks of vacant properties and make them into housing and intentional mixed income communities. I think it’s big,” Ramos said.
House Bill 538, now law, aims to incentivize developers to add affordable housing options in future developments and would allow certain development projects to exceed typical density limits if the new development incorporates a certain percentage of affordable housing units.
HB 693, also signed into law, is known as the Renters’ Rights and Stabilization Act. It creates the Office of Tenants and Landlord Affairs in state government, which would help tenants know what protections and legal actions they have under Maryland law. The bill also raises certain fees involved in the eviction process to reduce the number of unnecessary evictions, among other measures.
Moore’s last housing legislation that he signed into law is HB 599, which will create the Maryland Community Investment Corporation, a state entity that would make loans or investments aimed at developing and improving low-income communities.
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Comment:
Across the country elected officials have been looking at ways to tackle corporate homeownership.
New York City toyed with the idea of boosting taxes on vacant lots back in 2013 when property values had been soaring during the previous decade. Yet vacant sites whose market value are in the multiple millions because they are zoned for residential use and assessed in the same low-density class as single-family homes, see levies of only a few thousand dollars annually in property taxes. Cases like that spurred former mayor Bill de Blasio to push for tax hikes on vacant land to force owners either to put it to use and build housing or to sell it to those who will. But his proposal went nowhere.
Now, New York is trying again. Gov. Kathy Hochul in January 2025 proposed several measures that would restrict hedge funds and private-equity firms from buying up large numbers of single-family homes. She wants to prevent institutional investors from bidding on properties in the first 75 days that they are on the market. Her plan would also remove certain tax benefits, such as interest deductions, when the homes are purchased.
A better plan for NYC would be to simply eliminate the assessment of multiple classes of property at different rates, and adopt the principle of uniform taxation. Then lower the tax rate on all property’s land assessment and proportionately raise the rate on building assessments. This is the Georgist approach that Baltimore Thrive advocates along with many other progressive tax organizations.
Baltimore Thrive advocates a Tax Shift that would reduce the property tax rate applied to privately-created building values while increasing the tax on land values which are created by public goods, services, and nature. The lower rate applied to buildings makes them cheaper to construct, improve and maintain (in terms of lifecycle costs). This is good for residents and businesses alike. the higher rate applied to land values helps keep land more affordable by discouraging land speculation. Thus, without new spending or loss of revenue, this tax shift can make both buildings and land more affordable.
Today, land speculators hoard land, waiting for its value (created by others) to go up. When this happens, they collect a windfall by selling the land or renting it out at a higher price than what they paid. This parasitic activity creates an artificial scarcity of development sites, inflates land prices, reduces housing affordability, and induces urban sprawl. The result is lower taxes for residents and businesses and higher taxes for absentee land speculators.
Baltimore should pursue this approach that has been successfully implemented in several Pennsylvania cities. Detroit is also actively considering this approach” said Rick Rybeck of Just Economics, LLC in a letter to the Baltimore Sun.
But, with every progressive new idea there is pushback from some quarters…
Renew Baltimore is a volunteer group of Baltimore leaders, residents, business owners and economists proposing to bring people, jobs, and investment back to Baltimore City by cutting property taxes. To cement their proposal they intend to reduce the city’s property tax rate by half and cap it in the Baltimore City Charter through a referendum, to “ensure that a lower property tax rate will not change with the political winds”.
Baltimore City’s property tax rate of $2.248 is more than double Baltimore County’s rate of $1.10. Implicit in this observation is that the higher tax rate discourages business investment and overburdens homeowners. Overlooked, however, is the standard method of calculating tax rates. To attain a given amount of revenue, the overall rate is determined by dividing the projected revenue by the total assessed value of all properties in a jurisdiction. The city’s valuations are considerably lower than that of properties in surrounding suburban jurisdictions, therefore the City’s tax rate must be higher to reach the same or similar revenue figure.
Renew Baltimore claims that the city’s burdensome taxes discourage everything from ordinary home improvements to redevelopment of vacant and abandoned property. Actually, what discourages capital investment in upgrades and redevelopment is the tax on improvement values. If you want fewer vacant and neglected properties, raise the tax rate on land values and reduce the rate on improvements. That’s a land value tax – the solution that Baltimore Thrive is proposing.
Then comes the illusory statement: “With lower property tax rates, property owners will have less pressure to raise rents and more money to maintain their properties.” In reality, contract rents are not affected by taxes; it is what the demand market will bear that determines rent levels. At a certain demand level, a lower tax levy will simply be capitalized into a higher rent level to balance the difference.
Supply-side economics is not going to lead to a better outcome for Baltimore, nor anywhere else for that matter.
Tom Gihring, Research Director
Common Ground – OR/WA
commongroundorwa.org
