Is Oregon Considering Significant Property Tax Changes?

Governor Kotek’s Housing Production Advisory Council (HPAC) is considering recommendations that would radically alter the method of calculating and assessing property taxes in Oregon.  Oregon property owners should keep a close eye on these proposals. 

Our current property tax system.

Under current Oregon law, property taxes are assessed on the value of both the land you own and the improvements you’ve made to your property.  For example, the owner of a vacant lot in Portland would pay less in property taxes than the identical lot next door that has a large apartment building. 

This is fair, since the development on the lot with the apartment building substantially raises both the use and value of the parcel, equalizing the tax burden between the parcels.  The owner of the vacant lot can factor the increase in property taxes resulting from development before making a decision to make improvements to the lot.  Fair enough.

Consultants propose a new form of taxation. 

One HPAC proposal would replace Oregon’s current property tax assessment method with a “land value tax” (LVT). Under the LVT, improvements to the land are not taxed.  In our example, the owner of the vacant lot would pay the same amount of property tax as the owner of the apartment building.  Huh?

According to LVT proponents, the “logic” of a LVT is that it will force the owners of undeveloped or lesser developed properties to completely develop them in order to be able to pay their taxes.  In other words, the LVT proponents want to make property taxes so high for the general public that they are forced to either become developers, or more likely sell their land to someone who can develop it.

Using taxation as a weapon to punish people for not developing is a really bad idea.  Not only does it force people to make choices on how to use their land, it also creates a highly inequitable scheme where the owners of highly developed and valuable land get a massive tax break at the expense of property owners who can least afford to pay it. 

Think about it – right now, property taxes are tied to the actual value of your land, which obviously includes the improvements.  No one is going to pay as much for a bare lot that is immediately adjacent to a fully developed lot, assuming both share the same zoning and development capabilities.  The fully developed lot has more value, and if we’re going to have a property tax (which is another subject), the more valuable land should pay higher taxes.

Under LVT, highly valuable land will be taxed the same amount as low value land, in an effort to force the owner of the low value land to turn it into high value land. Really?

Our thoughts.

We’ve got an idea for the proponents of a LVT – how about we make it easier to develop undeveloped or underdeveloped land?  How about we change the system to make it easier to build more affordable housing and increase needed infrastructure? Wouldn’t that be easier?

Of course, that would mean that we would need to ease the burden of zoning overregulation, something that’s not particularly popular with LVT proponents, who would rather use a system that punishes property owners who can least afford a big property tax bill than actually trying to figure out a method that would improve Oregon’s land use laws in a way that make it easier for development to occur and which property owners can understand.

There is only one thing about an LVT that is certain – the vast majority of Oregon property owners are going to see a radical rise in their property taxes to make up for a huge windfall for a few property owners.  That’s not a good idea.  We’ll keep our eye on any new property tax proposals, and will work hard for all Oregon property owners to kill any proposal to switch to a LVT or drastically increase property taxes on Oregon landowners.

The opinions expressed in this post are those of the author and do not represent the opinions or positions of any party represented by the OPOA Legal Center on any particular matter.