The problem
The rising cost of land has a bad effect on the whole economy. In other Papers, we discuss its impact on matters like unemployment, booms and slumps, transport and communications and many other things. In this Paper, we consider just one aspect of the problem: how a simple reform, called Land Value Taxation, which is designed to deal with many different problems, would affect the ordinary homeowner.
The idea of Land Value Taxation (LVT) is that all land in the country should be valued, and the valuation revised annually. This valuation should apply exclusively to the land itself, and should not include the value of any "improvements" such as buildings, machinery, crops, etc. which are due to human activity. In the valuation, full allowance will be made for any restrictions on land use imposed by planning authorities. When the valuation is complete, a charge should be levied on the basis of that valuation. As money came in from LVT, other taxes would be reduced and in some cases abolished. In other publications, the Land Value Taxation Campaign explains how the assessment would be carried out, and the general benefits which would flow from it.
It is important to distinguish between two very different kinds of property which the homeowner possesses. The building is the creation either of the owner, or of someone from whom he acquired it. The land on which the building stands was never created by any human being. The land and the building both have a value, and what the homeowner pays for his home is the total of the two values. The reason why so many people, particularly young, first-time buyers, cannot afford a home is not that they cannot afford a reasonable price for the building, but they cannot afford the price of the land on which the building stands.
1. Will homeowners be robbed of the land beneath their houses with L VT?
No. With L VT, homeowners will continue to have the same rights as they have today over both kinds of property, but they will be required to pay L VT in respect of the land on which their houses stand. But, while they will be required to pay that tax, homeowners will be relieved of other taxes which they pay at present. Income Tax, Council Tax and VAT are obvious examples of taxes which would be greatly reduced, and in some cases perhaps even abolished.
2. Will poor homeowners be forced out of their homes because these stand on expensive land, and they cannot afford the tax for it?
No, far from it! Poor people usually live in localities with few amenities, often in run-down areas. In such places, people will have little LVT to pay, while they, like everyone everywhere, will benefit from the reduction in our current taxes which LVT will make possible, and from the increased and more efficient production which L VT will stimulate. It is the poorest people who need L VT most!
3. Will there be people living on moderate incomes in localities where the land has risen in value since they acquired their houses, who won't be able to afford the LVT?
Changes in land values will occur whatever the tax system. Under L VT, people will weigh up advantages like a convenient transport system, a nearby park and good schools against high L VT, in exactly the same way that at present they weigh up such advantages against high rents or house sale prices, and high Council Tax, when deciding where to live or whether to move.
There are many people who are put at a disadvantage by rising land values today. Many young people have to move out to set up home, because they cannot afford the price of houses in the neighbourhoods where they grew up. In rural areas, people are often priced out of their local housing market by townspeople buying week-end and holiday homes. Those who are able to sell out at the higher prices make no complaint!
The difference that L VT will make is that the whole community will benefit from the increased amount collected when land values rise. In current economic conditions, only landowners selling or letting at higher prices benefit from the raised land values enjoying wealth they have done nothing to create.
4. Will people get adequate warning of the arrival of L VT?
Introduction of L VT will require a change in the law. For this change to be made, a majority of MPs will have to vote the necessary legislation through Parliament. These MPs will require the votes of a majority of the electorate. Before this can happen, the principle of LVT will have to be explained and discussed until a lot of people are convinced that it is right. This will take time.
Even after the legislation has gone through Parliament, time will be needed to value all the nation's land. Then LVT will be gradually introduced and increased in stages as people recognise the benefits it is bringing them. Meanwhile, of course, other taxes will be reduced. The whole process will take a long time, which will give everybody plenty of opportunity to make necessary adjustments in their lives and finances.
5. How will pensioners' housing be affected?
Today many people count on obtaining the means to live comfortably in old age by selling their houses at a huge profit and moving into cheaper places on retirement. But the profit has come, not from a rise in the value of the building (which depreciates over time, in real terms) but from a rise in the value of the underlying land.
Yet the scramble for ownership of land which gives some home-owners the security of rising house prices also leads (as we show in other publications) to cycles of boom and bust, under-production, unemployment, lowered wages, and high taxes on incomes, goods and services. Home-owners suffer from all these things, as well.as from negative equity and re-possessions when they buy at the wrong time or in the wrong place, or both.
If one person gets something for nothing, somebody else gets nothing for something. If some people acquire wealth which they have done nothing to earn, through a rise in house prices, then others must do without some part of what they have earned.
Long before LVT is fully implemented, people will have realised that they cannot rely on future rises in house prices to fund their support in old age, and they will have switched to other ways of preparing for retirement. As L VT gradually takes effect, salaries and pensions will be given extra purchasing power by increased production and the lowering of taxes on goods and services. People will therefore find themselves in a better position to save for old age. As general prosperity increases, the community will be relieved of much of the present burden of supporting the unemployed and underpaid, and will be better able to provide for those who really cannot look after themselves.
6. How will LVT affect present provisions for subsidised housing?
Much housing is today subsidised in order to make it affordable. A complicated (and expensive) system of subsidies checks production, reduces employment, lowers wages and keeps the price of goods high. Thus it helps perpetuate the poverty which it is supposed to relieve. We would be better employed in improving the system by LVT than in tinkering with the consequences.
As we have seen, a major cause of high housing prices is the high price of the underlying land. This price is largely forced up by speculation. With LVT, the price of land will drop; when L VT approaches 100%, the price of land drops to near zero, and land speculation disappears completely.
But LVT has a much wider effect. Land which was previously unused or under-used is brought into use, because nobody wants to go on paying LVT for land which he isn't using. This will increase productivity, increase employment, raise real wages and reduce house prices to the price of the building alone. More and more people will be able to afford to buy their own homes.
7. Will LVT force homeowners to pay for unwanted amenities?
If there is a new amenity in a neighbourhood, it is likely to increase land values, and therefore LVT. But what of people who do not benefit from that amenity? An extension to a railway line will not help people who never travel by train; improved examination results in local schools do not benefit those with no children.
This happens in just the same way today. Childless people pay income tax and VAT to support schools; people who seldom travel are forced to pay for transport and communications; pacifists are forced to pay for "defence".
8. What will be done for "hard cases"?
With LVT, as with any kind of new tax, it is possible that some people may be unintentionally disadvantaged, particularly in the transition period. Parliament always recognises this when changes are made in taxation, by setting up temporary systems of reliefs, exemption or deferments to deal with hard cases. This would be an incomparably simpler business than administering the huge body of complicated regulations which exists at present to allow for the hard cases thrown up by our current taxes. Indeed, our present system of subsidies and welfare benefits has never eliminated poverty, only disguised it. Nor can it ever eliminate poverty, because these subsidies and benefits are provided out of taxes on production which check the creation of wealth. If we really want "social inclusion" and "equal opportunities for all", we have to give everyone an equal opportunity to benefit from the natural resources of the planet on which we all rely for existence.
9. What will happen to the Council Tax?
The Council Tax is a prime example of a tax which was brought out in a hurry, which nobody ever really thought was "right", but with which we have been stuck for years because nobody has had the courage to get rid of it and replace it with something better. It came about because the "Community Charge" - the "Poll Tax", as most people called it - not merely proved itself a bad and unfair tax, but in practice was uncollectable. The Council Tax was then introduced for domestic property. The valuation was set in broad "bands" which mean that people with properties of very different values are required to pay the same sum. In fact it is rather like the much older "rating system", only worse and a good deal less fair. The original idea was that Council Tax assessments would be reviewed at fairly frequent intervals, but we are still stuck with assessments made more than a dozen years ago, despite changing property values.
Land Value Taxation can be applied for local government purposes (where it is called "Site Value Rating", or SVR), just as it can be applied for the purposes of central government. SVR should replace Council Tax. It would be far simpler, far more just, and it wouldn't discourage householders from making the best use of their property.
10. Why is Land Value Taxation necessary?
LVT is needed to ensure full use of all available natural resources in the interest of everybody. Those currently out of work need the employment opportunities which will naturally arise when all potentially productive land is brought into use. Run-down areas need the tax advantage which LVT will give them, in order to stimulate economic regeneration. Prosperous areas of the country suffer from ever-increasing population pressure on limited space; this will be relieved by regeneration elsewhere. Homebuyers including the key workers who are now priced out of the housing market in some parts of the country, need the lower house prices which will result from the collection of LVT.
FOR FURTHER INFORMATION PLEASE CONTACT:
Land Value Taxation Campaign, at http://www.landvaluetax.org
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