The mess which this country is in today derives largely from “experts” getting their economics wrong. If we look at how a very simple economy works, we begin to see answers to a lot of modern problems, which the “experts” missed.
The Problem – Almost every city in Britain is disfigured by areas of idle, ugly wasteland.
Why do we have these blots on our city landscapes? Is this land just surplus to requirements? Surely not, since office rents and the selling price of houses remain high in urban areas even in times of slump. Why do developers not rush in to build on these empty sites and take advantage of the market? How has it come about that in crowded cities where there are large numbers of people needing offices and factories to work in, houses to live in, parks, swimming pools, pubs and theatres to play in, land is wasted and left empty?
Change is of course natural and inevitable in the economic life of a community. Certain industries, like the cotton industry in Lancashire, and the woollen industry of Yorkshire and a great deal of industry in Scotland and Wales fall into decline; passenger shipping is replaced by air travel and busy ports fall into disuse; urban sprawl can make an inner city area less convenient for trade because its roads are inadequate for an increased volume of traffic. For reasons like these, factories, warehouses, customs houses, shops may become redundant. But economic change does not explain why these redundant buildings are not converted to other uses or pulled down for others to build something new in their place. Nor does it explain why empty sites are left to decay and become a magnet for vandalism and crime.
How does it happen?
The main reasons for this waste and neglect of inner-city spaces are land price inflation and land hoarding. When population is growing and industry expanding, land is greatly in demand and prices rise rapidly. Seeing this, owners of land hold on to it as an ‘investment’ for the future, waiting for its price to rise still further before they sell or rent. This action increases the scarcity and inflates the price. Anticipating a need for building land in the future, both commercial firms and local authorities acquire or hold on to land they may not need for many years because they believe that when they do need it, its price will have soared and be prohibitive to buy. This too contributes to the scarcity of available land and thus increases the price.
In times of inflation, people acquire land as protection against loss when money is losing its value. Even in times of recession, those with the means to do so buy land as the most secure of possessions; it cannot be destroyed and in time it is bound to be in high demand again, for land is a limited resource. No one can respond to increasing demand for land by producing more of it, and no human activity can go on without it. Waste land represents an opportunIty for employment forgone.
Land close to the heart of a city tends to retain a high value even when derelict. When a high outlay for reclamation has to be added to a high price for buying or renting the land, it becomes a serious discouragement to potential developers as they weigh up the cost and the opportunities involved in the regeneration of derelict land.
These causes of inner-city decay are aggravated by our system of taxation. The owner of an urban site who neglects it and leaves it to become an ugly, frightening place, a dumping ground for rubbish, a meeting place for drug addicts and drug pushers, is charged little or nothing in taxation. The owner of a similar site who clears it, makes it safe for human habitation, builds a factory or office block where others can find employment, is punished for his efforts by a hefty charge in business rates. Business rates operate as a check on development and reduce opportunities for employment.
Attempts to tackle the problem.
For half a century, successive governments have made strenuous efforts to tackle the problem of urban decay. Government offices have been moved out of London to less prosperous areas. Development and Enterprise Zones have been set up. New roads and motorways have been built and grants made available for reclamation. Local authorities have been ordered to sell certain sites and development corporations have been set up to simplify and speed up the planning procedures which have been a discouraging cause of delay and expense to would-be developers. Certain areas, like the Docklands in London, have been regenerated by such means, but others particularly in parts of Britain away from the south-east of England, have, meanwhile, decayed further.
The problem persists. The main difficulty is that measures designed to encourage development put up the value of the land and in the long run encourage land speculation and land hoarding again.
Having seen that the root cause of urban decay is land price inflation aggravated by an unfair tax system, the solution becomes obvious. Change the tax system so that it works to discourage the holding of land out of use and encourages regeneration. This can be easily done by taxing the value of all sites, whether they have buildings on them or not – a reform which is called Land Value Taxation. Land of the same type in the same area would then attract the same level of taxation whether used or unused. Owners who neglected land and left it unused would no longer be rewarded by a tax exemption. Owners who cleared and decontaminated land and erected useful buildings on a particular site would no longer be penalised by a system of taxation which imposes a heavy charge for each improvement made.
Land value taxation would be a powerful incentive to redevelopment or resale. It would bring land on to the market, lowering its price and encouraging development, production and employment. No one would be compelled to pay the tax. Those who did not wish to use a plot of land could sell it. Under this system of taxation, no one would be robbed of any wealth personally created. The value of a site, unlike the value of the buildings erected upon it, is not created by its owner, but by the presence of the surrounding community, nearness to town centres, convenient transport facilities, schools, parks and other amenities.
As well as being fair and encouraging production and employment, Land Value Taxation would also be easy to assess and impossible to evade. Land cannot be hidden or transferred to a tax haven. Above all, Land Value Taxation would provide the means of tackling urban decay at its root instead of trying to deal with symptoms piecemeal.
The reader may guess that this Topic Paper was drawn up some years ago, but it is still wholly appropriate today. Another Topic Paper in the series “Taxation and Local Government” shows that a step in the direction of Land Value Taxation would be a change in the system of local government taxation known as “Site Value Rating”.
In other Topic Papers of this series, we show how Land Value Taxation would not only end urban decay, but would benefit the country in many other directions.
N Chisholm and P Kirell “Inner City Wasteland” IEA 1987
Chris Huhne “Why not tax all our vacant lots of land?” Guardian 16 Sept 1987
John Loveless “A permanent solution to the problem of urban decay” Paper
delivered at joint confce RICS and RTPI 3 Nov 1987
John Loveless “Why waste land? Towards an urban renaossance” Adam Smith Inst
(Research) Ltd, 1987
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