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Every night, 100,000 American children sleep on streets, in cars or in temporary shelters. The total number of homeless people, estimated at somewhere between 1 million and 3 million, continues to grow rapidly. Roughly a third are working people. The poorest one-tenth of renters spend 70 percent of their meager income for housing. And for the first time in half a century, home ownership is on the decline as middle-income families, especially young marrieds, are priced out of the market.

Despite all the signs of an intractable housing crisis, despite the federal budget deficit and President George Bush's no-new-taxes stance, there is hope for the millions of Americans who are deprived of affordable housing. Through a relatively simple change in the way that local governments tax property, rents and home prices can be made to fit poor and middle-class pocketbooks.

To call for a new strategy is not to disparage existing housing programs. Public subsidized housing still helps millions escape miserable conditions. Urban homesteading opens opportunities for those able to use sweat equity. Vouchers, certificates and welfare allowances are lifesavers. Volunteer and non-profit associations raise consciousness as well as shelter.

Yet we are on a treadmill. Our national housing inventory is eroding faster than we rehabilitate or build new units.

Why so much decay and abandonment? And why have housing costs gone through the roof? Not for lack of technical know-how. The productive genius that lets most Americans enjoy affordable cars, food and clothes does, in fact, produce affordable houses. The problem is not the house but what it sits on: the land.

Home costs during the last two decades have merely kept pace with general inflation. Since 1967, the Consumer Price Index for all items has risen 240 percent. Weekly earnings for construction workers rose 249 percent, and 260 percent for insurance and real estate employees. Construction costs for frame and brick residences rose 255 percent and 260 percent respectively. Mortgage interest rates fluctuated; in 1982 they were 130 percent above their 1967 level, but they fell back last year to only 60 percent above 1967.

However, from 1966 to 1981 (the latest available data) residential land values increased nationwide by an estimated 698 percent.

By a wide margin, land price escalation eclipses all other cost factors affecting housing. Remedies for those victimized by overcrowded, overpriced and unsafe quarters must face up to this phenomenon.

The property tax plays a crucial role in causing both the blighting of rental housing and the boom in land prices.

In nearly all cities, the property tax is upside down: The tax bill on housing structures is too high, while the tax bill on land values is too low. The typical tax on a house, equivalent to a 24 percent sales tax, would be excessive on any consumer product; on shelter, a basic human need, it is shocking.

High housing taxes punish good landlords. If they build new rental units or make major improvements, the assessor raises the valuation and their taxes go up. Explains economist William J. Byron, president of Catholic University: "The property tax is penalizing the wrong people -- the ones who make improvements instead of those who are letting buildings decay."

At the same time, relatively low taxes on land make it profitable to speculate -- to hold land idle. This creates artificial shortages of sites, causing urban land prices to soar.

Sadly, the present system makes it risky to provide desperately needed housing but lucrative to tear down or board up rental units while waiting for future gains.

These anomalies cry cut for a systemic correction -- namely, the lowering of taxes on housing and the raising of taxes on land. Then private housers can serve the poor without being forced to become slumlords to make a profit. And as land taxes rise, land prices will decline. That will cut land acquisition costs for subsidized housing.

Consider the example of a derelict apartment building worth $50,000 sitting on a $200,000 parcel of land. With a conventional property tax of 2 percent on the total of $250,000, the owner's annual tax bill is $5,000. If the owner improves the structure to a valuation of $1 million, the tax bill jumps to $24,000 -- a 380 percent increase, not once, but every year thereafter.

Now apply a two-rate tax -- 6 percent on land and 0.6 percent on structures -- to the same idle property. The annual tax is $12,300. This puts pressure on the owner to generate income by putting the property to use. After a $1 million renovation, the tax bill becomes $18,000 -- making apartments more affordable by $6,000 a year compared with the present system.

The two-rate property tax approach is not merely a theory. Its effectiveness is being demonstrated in Pennsylvania, where 10 cities have adopted the practice.

The tax rate is twice as high on land as on buildings in New Castle, three times higher in Harrisburg, four times higher in Scranton, six times higher in Pittsburgh and 16 times higher in Aliquippa. The cities of McKeesport, Duquesne, Washington, Clairton and Oil City have followed suit. The results?

• Average prices of new and existing homes in Pittsburgh are lower than in any other large American city -- $51,300, the Federal Home Loan Bank Board reports. (Boston tops the list at $229,300; Atlanta ranks seventh at $138,600.)
  
• Harrisburg officials report a drastic drop in vacant land since their two-rate tax was put into effect in the mid-1970s.
  
• As the property tax burden is shifted off homes and onto vacant or underutilized sites, cities have been able to cut taxes for most property owners and still rack up higher revenues. Harrisburg Mayor Stephen R. Reed, for example, says taxes went down for 97 percent of property owners when the reform was put in place.
  
• Compact inner-city development reduces urban sprawl, avoids the costs of overextended infrastructure and saves farmland from premature urbanization.

Comparable nearby cities tike Philadelphia are now weighing this property tax alternative because they have yet to experience the same benefits. Two-rate taxes are being designed for cities, counties and entire states.

Reshaping the property tax is "about the only thing government can do that will have a significant effect in bringing housing prices down," says finance specialist Dick Netzer of New York University.

The two-rate property tax is a workable housing strategy. But is it politically defensible?

Many cities expect that sky scrapers, sports arenas and giant shopping centers will somehow bring about social uplift as a spin-off. Yet the 40,000 Atlanta families living in squalid conditions, like their counterparts in other cities, might complain that recent waves of prosperity have passed them by.

In this light, recapturing community-created land values seems especially appropriate. The city, after all, provides a climate for commercial growth. Its growing population represents demand for space. And tax-supported facilities -- roads, fewer and water, public transit -- make the region more productive. All three factors are reflected in higher land values.

What can be fairer than recycling these land values for the benefit of the whole community? In that respect, reforming the property tax system is not only a vehicle for more affordable housing but an act of social equity.