AFFORDABLE HOUSING

What is the present situation with housing?
- One and a half million households cannot afford homes of their own
- Many construction workers are unemployed
- Where work exists, house prices are often out of reach of the workers
- House building encroaches on greenest land - yet there is vacant brown land in the middle of most of our towns.

What a mass of contradictions and absurdities!

Since World War II, many solutions have been advanced to "plan" our way out of these paradoxes, yet the problem is as intractable as ever.

Penetrating the Paradoxes

The price of a "house" is made of three different things: the price of the building materials -the bricks, timber, glass and so on; the price of the labour required to turn those materials into a house; and the price of the land on which the building stands.
The price of the building materials and the price of the labour too, follow the ordinary law of supply and demand. When demand increases, the price goes up. This encourages people to provide a greater supply to meet the demand. Building materials are produced as required, or people move out of other jobs into the construction industry.

The price of land, however, is governed by different economic rules. As with the building materials and the labour required for construction, where demand is high the price rises. But while it is possible to produce more building materials or more construction labour to meet the increased demand, there is no way of making more land, nor of moving it from one location to another. Indeed, owners of land are likely to keep that land idle, anticipating even further price rises. Thus the amount of land available where it is most needed will actually be reduced in times of high demand.
So the bottleneck in housing supply isn't building materials, or people willing to build houses, but land.

Making land available

The value of housing land is not created by the owner, but by its location: the availability of such things as good roads, public transport, schools, shops, hospitals, open spaces and so on. The different value of different plots of land is determined by who wants it, and how much they want it. In the case of housing land, that means what people are prepared to pay in order to live there.

As anybody can see in any town, large areas of land suitable for housing are at present vacant or under-used. The way to make that and available is by introducing a change in our taxation system. That change would not only help the supply of affordable houses, but would produce a lot of other benefits as well, which are discussed. in other Topic Papers in this series.
The value of every piece of land in the country must first be assessed. This assessment should not include the value of anything - such as buildings, or machinery, or crops - which has been introduced on the land by human activity. People whose job it is to value land assure us that this can be done quickly, cheaply and easily.

Once the valuation is complete, a tax should be collected, related to this assessment. This is known as Land Value Taxation, or LVT. At first the LVT would be small, but in time it would be increased, while other taxes would be correspondingly diminished.

Several things would happen.
- Large areas of building land which are at present withheld would come on to the market. This would happen because people owning land which they did not propose to use would not wish to go on paying a tax for something from which they were deriving no benefit.
- Land prices, which at present fluctuate wildly, would stabilise. When the price of land rose, the tax would rise too; when the price of land fell, the tax would fall too.
- A lot of people who previously could not afford to buy a house because of the land cost would be able to do so.
- Other taxes, such as VAT and Income Tax, would be drastically reduced.

The "Green" environment

In times of rising prosperity, there is great pressure from developers to persuade local authorities to release Green Belt land on which it is at present un\awful to build. Yet at the same time there are many brown field sites where building could take place without upsetting environmentalists. By inducing owners of under-used land to redevelop, LVT would protect the "green" area.

Today, pressure to corner building land produces another deplorable result. Builders guess that, sooner or later, local authorities will be compelled to release green-field land where, at present, building is unlawful. So they buy up that land for "land banks", and are quite prepared to wait for years until building is permitted. They often leave the land idle, and it then deteriorates. LVT would put an end to that practice. Builders with "land banks" would find themselves carrying an unnecessary tax, making those "land banks" too costly to retain.

Is there a snag?

Does LVT just mean that, while house prices will drop, the householder will find himself paying a new tax, and so he will be no better off in the end?

No. As LVT advances, other taxes will be reduced. So the householder will be better off financially.

Furthermore, LVT in no way damages useful production. Indeed, by making land more readily available it will positively assist production, while the taxes which it will replace all damage and distort production.