TP22. Housing Shortage?

Is the “housing shortage” real or artificial? How could the situation be improved?  

Many people – particularly, young people – would like to own a house or flat of their own, but are unable to do so. They are compelled to resort to a less satisfactory arrangement, like living with relatives, or renting accommodation which they can never hope to own. Is this the result of a genuine housing shortage, or are there other causes?  Paradoxically, there are also hundreds of thousands of empty houses, and large numbers of inhabited houses which are on the market, but for which the owner cannot find a buyer.

Land

To understand the root of the problem, it is necessary to reflect that what we call a “house” is made up of two entirely different things – the building, and the land on which it rests. Each of these things has a price. The price of the building is payment for the human effort put into its construction: making bricks, cement and glass; cultivating and later cutting down trees and forming them into timber; transporting building materials from place to place; planning the building and then erecting it. Lots of people have to be paid for the work they have done in creating the building.

But the price of the land is completely different. What gives a piece of housing land its price has nothing to do with what anybody has done on the site, but from something completely different. Perhaps there is a good view. Perhaps the site is close to shops, schools, places of work and entertainment. Perhaps there is a good local system of refuse disposal and a vigilant police force. Perhaps there are good roads nearby, and a good bus or train service. These things owe nothing to the activities of the present owner of the house, or any of his predecessors.

Towards a solution

The key to meeting the “housing shortage” problem is to give different treatment to these different things – the value of the land, and the value of things people have put on the land. This is best done by what is called Land Value Taxation, or LVT. The value of all pieces of land would first be determined. In this calculation, the value of all human “improvements” like buildings or crops would be ignored, and the value of the site alone considered. A small tax would then be collected on the basis of that valuation. As time went on, the Land Value Tax would be increased, while other taxes, such as Income Tax and VAT, would be correspondingly reduced.

How would this affect the housing shortage?

With LVT in place, people would not be able to afford to keep houses empty, and thousands of empty houses would soon come on to the market.

At the same time, plots of land which are suitable for housing, industry or commerce, which have been left empty for various reasons – often because the owners had acquired their plots in anticipation of a future price rise – would find themselves required to pay a tax. Owners of that sort of vacant land could not afford to hold it out of use with LVT in place, and would either develop the site or sell it to someone prepared to do so. A tax on this basis would make “brownfield” sites more attractive to builders and developers, and would reduce the pressure on the “green” environment. Land which is at present idle or derelict would be brought into use.

Tax reduction

As has been seen, one effect of LVT would be to allow other taxes to be reduced. An obvious target would be VAT, which is at present charged at 20% on rebuilding (although there is no VAT on new building). Removal of taxes on improvements would also help the reclamation of derelict land, or land which is seriously polluted and expensive to reclaim.

Planning permission.

The grant of planning permission for new development can raise the value of a site by millions overnight. This inevitably introduces the temptation for corruption in public life. LVT would remove this temptation because the increased value of land would be collected for the benefit of the community and would not enrich individuals or companies.

The upshot.

Towns would be renewed without gain to speculators, and planners would be relieved of pressure from landowners intent on maximising profit from undesirable developments. The will of the community, and preservation of the natural environment would become the deciding factors in planning decisions.

Thus LVT would work to do away with waste of natural and human resources. It would extend production on appropriate sites, thus increasing opportunities for employment and raising real wages. A more prosperous community would be in a position to demand a higher standard of design and construction. The “housing shortage” would disappear.