So, taxes and urban design. Sounds like the driest cocktail party conversation you can think of, but for the right audience, the correlation between the two can be quite fascinating.
It turns out that the way our cities look, the way we move through them, down to the amount of Sunlight our apartments get can all be traced back to tax policies.
Ever wondered why one city is full of skyscrapers, while another features endless urban sprawl? In this article, we have answers for this, and much more, as we dive into the reasons why taxes might be the hidden city planner you never knew you had.
The Skyscraper Tax That Killed The Skyline
Once upon a time, in jolly old 17th-century England, the government had a bright idea to tax houses based on the number of windows they had.
It seemed logical, coz more windows meant a bigger, wealthier home, so why not tax accordingly? The result? Bricked-up windows everywhere, because who needs daylight when you can save a few precious pounds?
Fast forward to modern cities, and this logic still applies. In many places, property taxes are assessed based on building value rather than land value.
This incentivizes property owners to keep land underdeveloped, such as with say parking lots, rather than build upward.
The better alternative in such a scenario, of course, would be land-value taxation, as it encourages efficient use of space, which is why cities with such policies often have denser, more vibrant urban centers.
Tax Loopholes & Urban Sprawl
Ever notice how American cities love their suburbs? That’s not just because of an obsession with white picket fences, it’s also about tax structures.
The U.S. tax system has historically favored homeownership, offering mortgage interest deductions and property tax breaks. This incentivizes single-family homes over dense, multi-unit developments, fueling suburban sprawl.
Even worse, tax laws often allow municipalities to raise funds through sales taxes rather than property taxes.
That means cities compete to attract big-box retailers instead of prioritizing walkable, mixed-use developments. The result? A sea of parking lots and strip malls instead of lively, pedestrian-friendly downtowns.
There is another angle to this, which has only exacerbated the problem owing to the rise in remote work, as well as how US citizens are taxed on their overseas income. This is far too complicated to discuss in this article, but here’s a quick guide to the Physical Presence Test that should get you up to speed.
The Parking Lot Epidemic
Now we come to the parking lots, and God knows our cities are littered with them, but how and why did things get so far? This overabundance of these eye sores is largely the result of encouragement from certainly badly planned tax policies.
Some US cities have property tax structures that literally punish improvements of any kind. If you build a skyscraper, your taxes skyrocket. But if you just leave your land as a big, empty asphalt slab? The tax bill stays low.
As a result, prime downtown real estate is covered in lifeless parking lots instead of housing, offices, or parks.
A smarter approach? Taxing land based on its location and potential use rather than what’s built on it. This forces landowners to develop property efficiently instead of sitting on empty lots waiting for prices to rise.
How Tax Incentives Shape Skylines?
Let’s switch gears to another tax trick that shapes urban form: tax-increment financing (TIF). Cities use TIF districts to spur development by freezing property tax rates and using the increased future revenue to fund infrastructure.
Sounds great in theory, but in practice, it often benefits large developers more than communities, prioritizing flashy projects over grassroots urban growth.
Another example? Height restrictions and zoning laws, often influenced by tax structures, determine whether a city grows upward or outward.
Places with heavy taxes on high-rise developments (or cumbersome zoning laws) tend to sprawl outward, while cities that encourage vertical growth (often through tax abatements) get those sleek, Instagrammable skylines.
Taxing The Commute – How Transit Fares Into the Equation?
Here’s a wild thought: what if your long, miserable commute is tax policy’s fault? Many governments fund infrastructure through gas taxes, tolls, or transit fares.
But these taxes disproportionately hit urban dwellers who rely on public transport, while suburban commuters often benefit from highway expansions funded by general tax revenues.
To make matters worse, it’s almost akin to relatively poorer city-dwellers picking up the tab for rich suburbanites.
Then there’s the workplace tax issue. Many cities rely on income taxes, which means suburbanites who work in the city but live outside its tax jurisdiction aren’t contributing to urban infrastructure upkeep.
This often leads to cash-strapped cities struggling to maintain transit systems while suburban commuters get a free ride (literally and figuratively).
Lessons From Around The World
Not every country gets it wrong. Some places have embraced smart tax policies that encourage better urban planning. Take Hong Kong: it funds public infrastructure through land leases rather than property taxes.
The government owns all land and leases it to developers, using the revenue to invest in public transit and services. The result? A dense, transit-friendly city with minimal sprawl.
Scandinavian cities, on the other hand, tax car ownership and fuel heavily while subsidizing public transportation, discouraging sprawl, and making city centers more livable.
Meanwhile, Singapore uses a combination of land-use planning and tax policies to tightly control development, ensuring efficient land use in its limited space.
The Takeaway
Urban planning isn’t just about architects and zoning boards, it’s also about tax codes. How we tax land, buildings, transportation, and businesses shape the cities we live in, often in ways we don’t even realize.
Sprawling suburbs, lifeless parking lots, clogged highways, and glittering skylines are all influenced by the subtle hand of tax policy.
If we want better cities, walkable streets, efficient transit, and vibrant public spaces, we need to think beyond just zoning and start looking at the tax structures that shape them. Because at the end of the day, the way a city grows isn’t just about what’s built, it’s about what’s taxed.
