Land held out of use

The Background.

There is a great housing shortage, yet many houses stand empty.

There are various reasons for this absurd state of affairs, not least of which is the fact that owners of undeveloped, or underdeveloped, urban land can, and frequently do, hold it out of use while land prices rise. They hope to make a killing later on.

Our present taxation and rating system positively encourages this kind of profiteering. Land without buildings, or with buildings which are unfit for use, is classified as "vacant land". Vacant land is not liable for either Council Tax or Uniform Business Rates (UBR). Furthermore, partially empty buildings, such as upper floors of shops, are also not liable to either Council Tax or UBR. Another absurdity is that where the "vacant land" could be brought into use by renovation work, this work is subject to 17.5% VAT.

In June 1999, the Urban Task Force under Lord Rogers made proposals designed to remedy that state of affairs. It recommended that empty commercial properties should cease to be exempt from business rates, and also proposed that the Government should introduce a Vacant Land Tax (VLT), in order to put pressure on the owners of vacant land either to develop it themselves or to sell it to somebody who is prepared to do so. In the small print of Lord Rogers's main Report, Towards an Urban Renaissance, he suggested that it "may be time for reconsideration" of another proposal, which is known as Site Value Rating, or SVR.

Snags with a vacant Land Tax

A Vacant Land Tax may be an improvement on the present state of affairs, but there would be serious difficulties.

1. It is difficult to define "vacant", and any definition is likely to be arbitrary. If a contractor's hut appears and a trench is dug, is the land no longer "vacant"? Will the owner of a huge and otherwise empty industrial site with a single business operating from one corner be required to pay VLT? Can a VLT make provision for bringing into better use land which is not technically "vacant" but is occupied by run-down buildings which blight the value of nearby property? Anomalies are almost bound to arise.

2. How soon after the vacancy occurs will the VLT bill appear?

3. Who would be responsible for inspecting sites to see whether they have become - or ceased to be - vacant, and how much would the inspection cost?

4. What is the basis for a VLT valuation? Lord Rogers made this observation:

"In the absence of a land value taxation mechanism, a vacant land tax would probably only work in England if the land could be attributed with an 'optimum use' value based upon other uses within the locality and realisable development proposals in the pipeline."

Any attempt to introduce VLT is bound to lead to arbitrary definitions, more bureaucracy and more expensive work for lawyers.

Is there a better way?

Are we forced to choose between the present state of affairs and a VLT, with all its unintended, but objectionable, features? No. There is a third possibility, which is known as Site Value Rating (SVR). This is the application of Land Value Taxation (LVT) to the requirements of local government.

SVR or LVT involves first valuing all land. This valuation would ignore the value of any buildings or other developments on land, and would concentrate on the value of the site alone. When the valuation is complete an annual tax would be levied on the basis of that valuation. SVR would replace the present Council Tax which falls on domestic property and Uniform Business Rate which falls on commercial property. Professional valuers agree that the process of valuation would be cheap and simple.

There is no reason to fear that SVR will harm the environment. Present planning legislation will be unaffected. Indeed, by bringing unused, or inadequately used, land into its best use, SVR will greatly reduce the pressure of developers who seek to take over what is at present greenfield land for building.

SVR would be every bit as effective as VL T in bringing idle, or inadequately used, land on to the marked, but it would not present any of the difficulties presented by VLT. It will also produce a great many other benefits, which are discussed in other Topic Papers in this series.