Coordinating Opposite Approaches to Managing Urban Growth and Curbing Sprawl A Synthesis

American Journal of Economics and Sociology, The,  Jan, 2001  by Thomas L. Daniels

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The missing ingredients in achieving these aims are effective land taxation policy and public spending. Wedded to meaningful land use planning and zoning, land value taxation could encourage in-fill development of open land within cities and older suburbs as well as the re-development of underutilized properties. But such a tax will only work if the option of escaping to the exurbs is discouraged. [6]

Because land value taxation is essentially a pro-development tool, it could promote sprawl in areas not appropriate for development if not limited geographically. This tendency is clearly explained by Backhaus (1997):

Every expanse of land, of course, has its limits and there will be tracts of land still devoted to their original use, such as extensive farming or ranching. As a consequence of the improvements through the development efforts, the adjacent land has increased in value but not itself has been improved. The land rent has risen. This land rent is what George envisioned would be taxed away. It will therefore become increasingly expensive to use this land in its original extensive way as a farm or ranch land. Taxing away the land rent makes extensive ranching or farming less and less attractive. Due to the taxed land's proximity to development, the farm or ranch land needs to be re-allocated to more productive purposes, and the Henry George tax drives this process of re-allocation along. [7]

In the nineteenth century with limited transportation, public sewer and water facilities, the von Thunen model of land rents was convincing. [8] The highest land rents were found at the city center and gradually decreased with distance from the city. In this scenario, land value taxation--and especially the Single Tax--would make land farther from the city center less attractive for development, and land closer to the city center more attractive.

But the von Thunen model no longer applies. There are many suburbs with higher rents than parts of their central cities. Why? The suburbs have better access to amenities, transportation, and public investment in schools and sewer and water. Access is value. Land value taxation alone will not limit the spread of suburbs, because public investment in roads, schools, and sewer and water is causing the unearned increments on nearby land to rise. Land value taxation applies to those rising land values, thus creating an incentive for the land to be developed.

Some kind of demarcation line is therefore necessary to determine where the encouragement of development should stop, and the retention of farm, ranch, and forest lands continue.

There are two ways that this demarcation line can occur. One is by government fiat. For example, the State of Oregon in its 1973 land use act required each city and its adjacent county to agree upon the establishment of urban growth boundaries. Within each boundary is sufficient land to support population growth and development over a 20-year horizon. Public infrastructure that induces growth, such as public sewerage, water, and schools, must be located with the growth boundary. In this way, growth evolves in a more compact fashion that is cheaper to service and minimizes the loss of farm, ranch, and forest land to development. The growth boundaries are flexible, in that they can be expanded as population growth and development needs change. This way local governments have replaced unplanned sprawl with "phased growth."