How Taxes Shape Your City

Taxes shape your city. Sometimes it is an unintended consequence, but ultimately the shape of the city and the buildings in it are largely determined by the various taxes imposed on real estate.

The most obvious way this happens are the tax incentives the government uses on corporations to convince them to relocate to strategic growth areas that the government wishes to promote. By doing so, the employment opportunities in that area should increase, causing more people to move there, increasing the amount of investment in that area. The city would then simultaneously become more spread out and dense at the same time. A good example are the tax subsidies that are given to enterprises in China to convince them to move across the river from Shanghai to Pudong, China.

However, what I find to be most fascinating are the subtle effects that real estate taxes have on the buildings themselves. In Amsterdam, the Dutch authorities in the 16th century decided to tax the Dutch based on the width of their houses. This, of course, made many of the Dutch build extremely narrow houses to reduce the taxes they had to pay. Their buildings are, unsurprisingly, considered to be one of the narrowest homes in the world.

Similarly, Japanese real estate taxes have also changed how their buildings are built. In Japan, inheritance tax is levied on the land itself. As such, land was often subdivided into smaller plots to reduce the inheritance tax payment. As time went by, housing plots became smaller and smaller resulting in the Kyosho Jutaku (Japanese Micro Homes) that we see in Japan today.

These physical differences between cities and or countries are normally looked at without a second thought. However, after taking a closer look, you will sometimes realise the impact taxes can have on your physical surroundings.


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