Rules Without Enforcement

One issue several people pointed to with regard to efforts to use the property tax to discourage owners from sitting on vacant property is that the rules are useless unless they’re enforced. L.G. sent a link to this post:

Unfortunately, the reality in Washington DC is that many vacant properties never get on the vacant property lists, many receive waivers so that they do not have to pay the higher tax rates and surprisingly, many continue to receive homestead exemptions even though the properties are considered vacant by the DC government.

The author of the post was spearheading an effort to develop a better list of vacants in his neighborhood. That kind of community action could work. But thinking about the issue, the punitive approach of putting an extra tax on vacants has this kind of inherent enforcement problem in that it’s in the interests of the owner to keep the authorities ill-informed about the state of his property. The basic shape of the issue, however, is that there are positive externalities associated with developing abandoned or vacant lots. It’s impossible for early movers to fully capture the value of their activities to the community at large. Consequently, we get less early movement on redeveloping these areas than we should. Penalizing those who are slow to act could work if you got the enforcement right, but it’s hard to enforce. Some kind of mechanism to provide adequate incentive to early movers, by contrast, would have fewer compliance problems since the eligible recipients would obviously be eager to draw attention to themselves.