May 10, 2022 - Real Estate

Tax reform would target land speculators in Detroit

Annalise Frank

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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Tax reform would target land speculators in Detroit

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