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In 2015, the Multi-Unit Property Tax Exemption was introduced to promote development downtown. In May, 10 years later, the city faced an $11 million budget shortfall and talked about closing public pools, cutting library hours and ending several more treasured quality-of-life programs. MUPTE was successful in driving development, but it has handicapped the city’s revenue and we’re paying for it.
We can do better.
There’s a way to encourage development as effectively as MUPTE without sacrificing revenue. It’s called split-rate property tax and it fixes a key flaw in how we currently tax land.
Right now, property taxes apply equally to land and the buildings on it. That means the more you improve a property, the more you pay. It’s a quiet but powerful disincentive to build. For example, a developer might purchase a vacant lot but leave it undeveloped for years, knowing that any new construction would trigger a higher tax bill. (Cough, cough The River District in Eugene.)
Long story short, our property tax makes it harder to build.
Split-rate taxation fixes this. By taxing land at a higher rate and buildings at a lower one, we flip the incentive structure. With unused land taxed the same as used land, there is every incentive to get the most out of the lot. That will mean adding housing above commercial properties, adding neighborhood cafes – it’s making the most of our opportunities.
We have evidence to support these conclusions. This kind of tax has been implemented across the U.S. many times.
In the early 1900s, Cleveland adopted this approach under progressive mayors Tom L. Johnson and Newton D. Baker. The city flourished with rapid housing growth and improved public services. It was funded not by tax breaks, but by fairer taxation.
In 1920s New York, the Al Smith Law allowed the city to lower taxes on new apartment buildings. This helped spark a building boom that shaped the skyline we know today – proof that cutting taxes on improvements can ignite development.
And more recently, 15 cities in Pennsylvania adopted split-rate taxation in the late 20th century. In places like Harrisburg and Allentown, the results were clear: more construction, less vacancy and stronger tax revenues over time. (For a deep dive, see the 2001 paper from the University of California or Strong Towns’ excellent summary of the Pennsylvania experience.)
Naturally, the question is raised, what about parks, nonprofits and other uses we want but that don’t make money? Land used for public benefit, such as city parks, nonprofit shelters, public libraries and similar spaces shouldn’t be taxed the same as land held purely for private gain. Exemptions or reductions can – and should – be built in for spaces that are shared, essential or stewarded for the good of the community.
The goal of tax policy is to shape the kind of city we want. If a policy doesn’t serve that goal, then it needs to change.
For Eugene, the right way to implement this tax would be gradually. Over eight years, we would move from the 50/50 split to a 90/10 split. This avoids any sudden shocks to the market and gives people time to adjust their plans. Right now, this kind of reform is held up by state law governing property taxes. To overcome this, Eugene’s intergovernmental committee should pressure state lawmakers to make property tax reform part of their agenda for the next session.
The answer to homelessness is housing. The answer to housing is incentives. The answer to incentives isn’t MUPTE; it’s split-rate property tax.
