May 10, 2022 - Real Estate

Tax reform would target land speculators in Detroit

The old southwest Detroit hospital building is pictured near a crumpled old sign advertising a "mixed use development."

A split-rate tax proposal would aim to incentivize developing vacant land and redeveloping languishing buildings like the long-vacant old southwest Detroit hospital, pictured next to a crumpled sign advertising a mixed-use development that never materialized. Photo: Joe Guillen/Axios

The city is looking at a plan to tax vacant land at a higher rate than buildings to try and help homeowners while deterring speculators.

Driving the news: This property tax plan would "help revive the local economy," a recent Lincoln Institute of Land Policy study commissioned by the Kresge Foundation and Invest Detroit found.

Why it matters: Detroit has low property values but high property tax rates. It's an added cost for homeowners and homebuilders in a city that's struggling to recover economically from two recessions and decades of disinvestment.

  • The study found that a so-called "split-rate" tax system "discourages the holding of vacant and underutilized property" by assessing higher taxes on it.
  • Then it "accelerates development and redevelopment of property," by lowering rates for buildings and property improvements.

By the numbers: If Detroit taxed land five times more than it did buildings, 96% of homeowners would pay less in taxes and average 18% in savings, the Lincoln Institute found.

  • Detroit homeowners currently pay 69.6 mills in property taxes. A mill is a dollar of taxes per $1,000 of the property's taxable value.
  • For comparison, Grosse Pointe residents pay 50 mills and Redford Township residents pay between 44 and 53.

What they're saying: "In our city we have an issue of some big corporations or landowners owning a lot of land and just holding it without developing on it …" Councilmember Gabriela Santiago-Romero tells Axios. She says the split-rate plan is on her priority list.

  • "There are enormous fiscal penalties to living in the city of Detroit as a resident now," Nick Allen, report co-author, told BridgeDetroit. "Those who have stayed in Detroit have paid escalating legacy costs, received fewer services, and seen their property wealth decline."

Yes, but: First state law would need to be changed to allow cities the ability to institute a split rate, according to Santiago-Romero.

  • Plus, city council legislative policy staff have a lot of other questions, including specifics on the impact on tax breaks and the city's finances.

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