Skip to main content
Open Access Publications from the University of California

Neutral Property Taxation


A major difficulty in implementing land/site value taxation is imputing the land value of builton sites. The literature has focussed on two alternatives. The first, residual site value, measures postdevelopment site value as property value less structure value, measured as depreciated construction costs. Residual site value would be relatively easy to estimate, but residual site value taxation is distortionary, discouraging density. The second, raw site value, measures post-development site value as "what the land would be worth were there no building on the site (though in fact there is)". Raw site value taxation is neutral (does not distort the timing and density of development), but the estimation of raw site value would be complex so that assessment would likely be less fair and more arbitrary, contentious, and prone to abuse. This paper asks the question: Is it not possible to design a property tax system (taxation of predevelopment land value, post-development structure value, and post-development site value at possibly different rates) that employs the administratively simpler residual definition of post-development site value and achieves neutrality? The paper provides an affirmative answer, characterizes the tax rates that achieve neutrality, and briefly discusses issues of practical implementation.

Main Content
For improved accessibility of PDF content, download the file to your device.
Current View