Another approach is land value tax, ie. make it very expensive to have idle buildings or parking lots in the city center. You can still have some deductions for primary residences to lessen the impact on them, while creating incentives to keep landlords from low-occupancy uses.
Land value taxation and reduction of regulations which artificially limit supply are the obvious solutions.
Taxing improvements to land makes it less likely that people will build or renovate, so all such taxes should be removed. Taxing land, however, disincentivizes landlords from holding land idle.
Regulations are also important.
If there is a mandatory minimum amount of parking that must be provided, then it becomes that much harder to build more units, even if you are near transit and most of your tenants don't need cars.
If there are height restrictions, restrictions on mixed-use development, restrictions on the number of units allowed, and so on then these will likewise cap the amount of supply.
The best solution to this problem is taxing land value instead of taxing property. Land value taxes have a lot of advantages. They incentivize construction, disincentivize vacant lots, and they also remove the profit that can be earned by being an idle landlord, which is unearned income.
With property tax, improvements on your property are taxed. This makes construction less profitable / housing more expensive. With a land value tax, they aren't.
The solution is actually simpler, set a property tax that would hurt if the buildings became vacant. For example if you pay 1% of the buildings value as property tax each year, it would make enough incentive to rent it out or sell if you don't need it. The proceeds can be used for building public housing projects or helping the homeless. Property tax was invented for this very reason.
You could design taxes specifically aimed at lowering the appeal of landlordism, for example a high property tax (or LVT) with a deduction for your primary residence. This would encourage people to sell off buildings that aren't their primary residence and turn apartments into condos, increasing the supply and lowering the price.
Graduated wealth taxes solve this even more cleanly.
Use a land value tax, and update it frequently. If rents are going up in an area, then the land value is increasing and taxes should go up accordingly.
This also removes the disincentives around making property improvements. It makes little sense for cities to penalize people for renovating and improving property.
It also adds healthy competition among landlords/owners and encourages higher density in places where land value & demand is high.
Land Value Tax: Make it financially unfeasible to speculate, to withhold units from the market, and to withhold unused land from the market. Let prices freely fluctuate with the market. Increases in rent derived from externalities (i.e. Amazon HQ2 setting up shop nearby or a new subway station) go back into public coffers, while increases in rent derived from landlord actions (i.e. renovations, building bigger, better units that command higher prices) go directly into their pockets.
I would tax buildings-activities for congestion. If you rent a building for residential use: no tax. If you rent it to be used as a Shopping Center: big tax. If on top of that, they don't have a big parking space: huge tax.
Taxing used property in dense areas would likely just increase the costs further, although I assume that might be intended in the long run to push for more use of vertical space.
More useful would be a tax which increases the longer a vacancy exists on unused lots, vacant or secondary apartments/housing, and property sales that have been unsold for X number of days.
Real estate speculation and housing as financial instruments are basically contemporary feudalism.
Or just institute a land value tax, which would automatically penalize all those housing-cost-driving behaviors plus a bunch more (like owning a single-family home or a parking lot in the middle of Downtown) without needing a bunch of loophole-prone narrow ad-hoc taxes on each individual situation.
I think a tax on vacant properties is potentially a better way to go, though checking and enforcement could be the issue (exempting one's primary and maybe secondary homes); multi-unit housing would also be exempt.
This would place more downward pressure on rents and decrease the investment upside on buying.
I'm sure this is a bad idea in a number of ways I haven't considered.
Another possible approach is taxing the value of land, rather than the land and structure combined. This would incentivize higher density construction since land owners would want to recoup the tax bill.
A stiff land tax within major cities would probably be the most comprehensive solution. It would incentivize intensive use of land, leading to denser housing (compared to a property tax, which incentivizes the opposite); it would also make urban land a less compelling investment, leading to lower prices.
For whatever reason I like the idea of raising property tax and giving a tax credit if your property is at or near full occupancy. If you goal really is to provide enough cheap housing that no one is missing a house, then you might want to give a housing tax credit for every person you house in a legal space.
Rent control only helps people that already live in a neighborhood, housing assistance requires a good bit of regulation & has stimga attached. If you target the renter instead you can just leave it to the market.
Needing to build more houses is a myth pushed forward by nimbys and developers.
You can achieve the same and more by releasing unused housing back to market instead of sitting idle for speculative reasons.
Increasing property taxes seems like a first viable solution, but it has drawbacks. It can apparently br avoided in some cases and they wouldn't affect owners of empty lots or derelict ruins that need the release back to market the most.
This is solved by a tax on land value, not on propery value. Empty unused lots would get a massive tax, regardless of if there is a skyscraper on it or it is an empty space. High rise properties wouldn't get impacted much because the same tax would be amortized across many units. Properties outside of cities wouldn't get affected much, because land values outside of cities are low.
Land value tax is a mechanically brutally simple and effective solution to the problem of congestion in city centres. Politically completely infeasible, because if there is someone fighting tooth and nail against such policies, it is the nimbys who inherited at the right time - modern day aristocracy.
Would love to see what would happen if governments put some interesting tax policies in place. Taxing Non-primary residences at a higher rate. Taxing empty units at a higher rate to prevent price fixing due to artificial supply control.
And when I say empty unit, I would include commercial in that list. Land that is sitting unused, that is zoned to be commercial, industrial, residential, should be taxed at a higher rate to encourage it's sale and/or development for it's zoned purpose.
You're going to have major problems no matter what when there's demand and no political ability to build. A Land Value Tax can still in this situation put the landlord surplus back into city welfare/projects without raising rents.
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