D.C.’s proposed split-rate property tax is being presented as a way to encourage development, reduce speculation, and make better use of scarce urban land. Presumably to generate economic development activity and build much needed housing. The underlying theory is simple (albeit misguided): tax land at a higher rate, tax buildings at a lower rate, and owners will have a stronger incentive to build, renovate, or redevelop.
In theory it’s an appealing concept, but in practice, it risks treating the symptom rather than the problem.
Development doesn’t happen simply because an owner faces a larger tax bill. It happens when zoning allows the use, the entitlement path is predictable, capital is available, construction costs are manageable, infrastructure can support the project, and rents or sales prices justify the risk. If those fundamentals are not in place, a higher tax on land will not create a viable development opportunity. It only increases the cost of holding property while an owner works through potential development scenarios or waits until a repositioning or development becomes feasible.
Under the proposed split-rate system, the District would tax land and improvements separately, applying a higher tax rate to land value and a lower rate to the building or other improvements. In addition to “incentivizing” development, supporters also argue that this would eliminate the current “penalty” on construction by reducing the incremental tax burden created when an owner improves a property.
Unfortunately, that’s a red herring, and even red meat for certain activists. But while a property may appear underutilized from the street, it very well could be actively positioned for redevelopment. The owner could be seeking zoning relief, navigating historic-preservation requirements, completing environmental work, assembling parcels, negotiating utility upgrades, refinancing, securing equity, or working to prelease a project. In a market where construction costs, interest rates, insurance, and tenant demand remain significant constraints, these are not hypothetical issues. They are often the difference between a viable project and one that never gets built.
A higher land tax does not reduce any of those constraints.
It does not lower construction costs. It does not improve debt-service coverage. It does not create apartment demand, office tenants, or retail sales. It does not accelerate permitting, zoning approvals, public review, or utility coordination. And it does not make lenders more willing to finance a project that does not pencil.
The District should also be careful not to assume that every vacant, blighted, or lightly improved property is being held for speculative purposes, as some like to accuse owners of simply “sitting on” property. D.C. already has targeted tools to address that concern. Vacant real property is taxed at $5.00 per $100 of assessed value, or 5% annually, while blighted property is taxed at $10.00 per $100 of assessed value, or 10% annually.
Those are substantial rates. On a $5 million assessed property, the vacant-property tax would equal $250,000 per year. If the property is classified as blighted, the tax would rise to $500,000 per year. The District does not lack a mechanism to discourage owners from sitting on actual vacant or neglected property. It already has one.
More importantly, the existing approach is targeted. It allows the District to distinguish between a property that has been abandoned or allowed to deteriorate and a property that is actively being maintained, leased, marketed, entitled, financed, or prepared for redevelopment. A split-rate tax risks losing that distinction by increasing the tax burden on land regardless of the owner’s circumstances or the practical feasibility of redevelopment. There is also a cruel irony in this endeavor because a land value tax creates an unintended consequence of inequity when applied broadly, while those in favor argue that a land value tax is meant to narrow the equitable divide.
This policy decision is particularly concerning for long-term owners, family-owned businesses, neighborhood retail properties, nonprofit organizations, and owners of older commercial buildings in rapidly appreciating areas. A property’s land value can increase substantially even when the existing use remains occupied, productive, and valuable to the surrounding community. A higher land tax may force owners to sell or redevelop before market conditions support doing so.
That may be viewed as a feature rather than a flaw by those who believe every parcel should be developed to its maximum density. But cities are more than a collection of highest-and-best-use calculations. Long-standing businesses, smaller commercial properties, institutional uses, and neighborhood-serving assets all contribute to the character and functionality of a city.
The D.C. Policy Center has previously noted that a land-focused tax may encourage additional density where development capacity exists, but that zoning and other regulatory restrictions can limit its effectiveness. That is the core issue. A tax policy cannot compel development where the city’s rules, the capital markets, or the economics make development infeasible to begin with.
D.C. should focus on making development more feasible before making land ownership more expensive. That means predictable entitlement processes, practical zoning rules, and targeted incentives.
The District does not need a broad new tax structure to address vacant or blighted property. It already has a 5% vacant-property tax and a 10% blighted-property tax for that purpose. The better question is whether D.C. is consistently using the tools it already has—and whether it is addressing the real barriers that prevent housing, commercial reuse, and redevelopment from moving forward.
