Land Value Tax (LVT)

Key takeaways
* A land value tax (LVT) taxes only the value of land, not the buildings or improvements on it.
* LVT is an ad valorem tax — levied according to value — that tends to be more stable than taxes that include structures.
* Proponents argue LVT is fairer, reduces economic distortions, and encourages efficient land use; it is used in some jurisdictions but is not yet widespread.

What is a land value tax?

A land value tax (LVT) is a property tax applied solely to the unimproved value of a parcel of land. Structures, buildings and other improvements are excluded from the tax base. The tax is intended to reflect the intrinsic and location-based value of the land itself.

Purpose and rationale

• Land is a finite resource whose value largely derives from location and surrounding economic activity (public infrastructure, businesses, zoning, etc.).
• Taxing only land value avoids penalizing investment in buildings and improvements, which can encourage development and maintenance.
• Because land value is generally less volatile than the value of buildings, LVT can produce more predictable revenue and reduce sudden swings in tax burden caused by housing market volatility.

Brief history and principles

The idea of taxing land value has roots in long-standing philosophical and economic thought that land value is created socially (by communities and infrastructure) rather than solely by individual owners. Over time many tax systems began separating land and improvements in assessment, reflecting the principle that land-based value is a distinct taxable base.

How LVT works

• Assessment: Authorities estimate the unimproved value of a parcel—what the land would be worth without buildings or other enhancements.
• Rate: A tax rate is applied to that assessed land value to determine the annual tax.
• Contrast with traditional property tax: Traditional property taxes assess combined value of land plus buildings; LVT excludes the value of structures.

Practical examples
* Municipal assessments that separately value land and improvements are the operational basis for LVT-style systems.
* A homeowner who improves a house would not see their land tax rise solely because they added a building; conversely, allowing improvements to decay lowers the assessed building value but does not change the land tax.

Economic effects and deadweight loss

• Deadweight loss refers to the economic inefficiency created when taxes distort behavior. Taxes on productive activity or investment (e.g., buildings, improvements) can discourage that activity.
• Because land cannot be moved or hidden and its supply is fixed, taxing land value is less likely to distort productive decisions and therefore generates lower deadweight loss.
• Separating land value from improvements can stabilize municipal revenues and reduce the amplification of tax swings tied to volatile building markets.

Comparison with traditional property taxes

• Traditional property tax: taxes combined value of land and structures; can discourage improvements and investment in property.
• Land value tax: taxes only land value; encourages development, makes tax burden more predictable, and is often considered fairer in regions where land value reflects community-created advantages.

Implementation and current use

• LVT has been implemented in various forms in a number of places (often as partial LVT or through separate land assessments) but is not the dominant property tax model in most countries.
• Adoption challenges include the need for accurate separate land assessments, political resistance from existing landowners, and the transition logistics from current tax systems.

Advantages and disadvantages

Advantages
* Encourages efficient land use and development.
* Lowers economic distortion compared with taxes on improvements.
* More stable tax base tied to location and public goods.

Disadvantages
* Requires reliable, separate assessments of land value.
* Political resistance from landowners who may face higher taxes.
* Transition issues where tax liabilities shift between landowners and others.

Bottom line

A land value tax targets the unimproved value of land and aims to create a fairer, more efficient, and less distortionary method of taxing property. While it is praised by many economists for reducing deadweight loss and encouraging productive use of land, practical and political hurdles have limited its widespread adoption. Communities considering LVT must invest in precise land valuation systems and manage the distributional effects of any transition.